- India’s merchandise trade deficit moderated to USD 25.7 bn in Sep-22 from its record high level of USD 28.0 bn in Aug-22.
- Moderation in trade deficit was on the back of sequential expansion in exports, while imports registered a mild contraction.
- Moderation in merchandise trade deficit is along expected lines with lagged impact of the correction in international commodity prices playing a key role along with government’s partial rollback of the earlier imposed windfall tax on petroleum exports. Rising share of Russia oil in India’s import basket is also playing a minor role.
- Monthly trade deficit prints may moderate further in the coming months as impact of recent correction in commodity prices trickles down and global supply chain pressures ease.
- Increased risks to exports due to the global slowdown and relatively healthy demand for imports would however continue to keep the deficit pressure elevated.
- While we maintain our FY23 current account deficit forecast of USD 130 bn, we do acknowledge scope for some downside risk given the recent softness in commodity prices and inclination of the government to rollback administrative restrictions on exports.
India’s merchandise trade deficit moderated to USD 25.7
bn in Sep-22 from its record high level of USD 28.0 bn in Aug-22. Moderation
in trade deficit was on the back of sequential expansion in exports (+4.5%
MoM), while imports registered a mild sequential contraction (-1.2% MoM).
In value terms, merchandise exports
rose to USD 35.5 bn in Sep-22 from USD 33.9 bn in Aug-22. This translated into
a moderate annualized growth of 4.9% YoY in Sep-22, up from 1.6% in Aug-22.
- The sequential increase in outbound shipment was led by Petroleum Products
(USD +1.7 bn), Gems & Jewellery (USD +0.5 bn), and Electronic Items (USD
export of electronic items scaled a new monthly high of USD 2.0 bn in Sep-22.
We also note that the partial rollback of windfall tax on oil exporters helped
to buoy export realization in this category.
was some offsetting impact seen from sequential decline in export of Agricultural
Products (USD -0.3 bn) and Textiles (USD -0.3 bn). The reduction in rice
exports post imposition of government imposition of 20% export duty on certain rice
varieties explains the decline in agricultural exports. This could see further
compression in the coming months.
exports moderated to USD 28.0 bn, the lowest level in last 10-months,
reflecting the slowing demand from particularly the developing nations.
Nevertheless, cumulative exports for the first six months
of FY23 stand at USD 231.9 bn, an expansion of 17.0% compared to the
corresponding period in FY22.
Merchandise imports slipped
marginally to USD 61.2 bn in Sep-22 from USD 61.9 bn in Aug-22, translating
into an annualized growth of 8.7% YoY, down from 37.3% in Aug-22. At a granular
- On annualized
basis, the sharp deceleration is predominantly on account of lower imports of
Gold (-24.6% YoY), Project Goods (-9.1% YoY), Petroleum Products (-5.4% YoY),
and Agri & Allied Items (-3.5% YoY).
sequential decline in imports was led by Petroleum Products (USD -1.8 bn), Ores
& Minerals (USD -1.0 bn), Organic & Inorganic Chemicals (USD -0.5 bn), Non-ferrous
Metals (USD -0.2 bn), Plastic & Rubber Articles (USD -0.2 bn), Machinery
Items (USD -0.2 bn), Electronic Goods (USD -0.2 bn), etc.
Transport Equipment (USD 1.3 bn), Gems & Jewellery (USD +0.9 bn), and
Fertilizers (USD +0.3 bn) were key sub-categories within imports that saw a
sequential increase during the month.
the sequential moderation in headline imports, NONG (Non-oil-non-gold) imports,
a key indicator of domestic demand, inched up to USD 41.4 bn in Sep-22 from USD
40.6 bn in Aug-22.
Cumulative imports for the first six months of FY23
stand at USD 380.3 bn, marking an expansion of 38.6% compared to the
corresponding period in FY22.
As highlighted in the Sep-22
edition of “Acuite Macro Pulse” report, the moderation in India’s
merchandise trade deficit in Sep-22 is along expected lines with lagged impact of the recent correction in
international commodity prices playing a key role along with government’s
partial rollback of windfall tax on petroleum exports. A minor salubrious impact
is also emanating from the dramatic increase in Russia’s share in the import
basket (to 7.0% in Aug-22 vis-à-vis 1.3% in Aug-21). Going forward, it is
likely that the monthly trade deficit could moderate somewhat as the full
impact of lower commodity prices further trickles through.
However, trade deficit is still set
to remain elevated compared to earlier years as:
- The start
of festive season in India could keep domestic demand supported.
- The Russia-Ukraine
war is dampening world trade volume (the IMF in its Oct-22 update of the World
Economic Outlook report slashed its projection for growth in 2023 world trade
volume (goods and services) by 70 bps to 2.5% vis-à-vis its estimate of 4.3% in
2022, which will weigh on India’s merchandise exports.
marginal adverse impact on exports is also on account of the recently imposed
export restrictions by the government in case of select commodities such as
rice and wheat.
cases of persistence of supply disruption (in case of import of Vegetable Oils,
Coal, etc.) and sudden spurt in demand (in case of import of Silver on account
of substitution effect vis-à-vis gold and its rising demand on for green
infrastructure) is also seen to be playing a role.
While we maintain our FY23 current
account deficit forecast of USD 130 bn, we do acknowledge scope for some
downside risk given the recent softness in international commodity prices and
inclination of the government to rollback certain administrative restrictions
on exports (although the recent back and forth on windfall tax on petroleum
exports adds to uncertainty).
Table 1: Highlights of merchandise trade balance
Numbers may not add up due to rounding off and revision in headline exports and
Chart 1: While headline trade
deficit narrowed somewhat, core trade deficit continues to widen to record
Core trade balance excludes trade balance on account of petroleum products and
gems & jewellery from headline trade balance.