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 +0.3 bn).
• Incidentally, 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.
• There 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.
• Non-oil 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.

Imports

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 level:

• 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).
• The 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.
• Meanwhile, 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.
• Notwithstanding 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.

Outlook

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.
• A 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.
• Individual 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 

Note: Numbers may not add up due to rounding off and revision in headline exports and imports

Chart 1: While headline trade deficit narrowed somewhat, core trade deficit continues to widen to record levels

Note: Core trade balance excludes trade balance on account of petroleum products and gems & jewellery from headline trade balance.