New Delhi: India’s trade deficit increased to a record $31 billion in July, with sequential declines in exports and relatively stable imports due to the developing growing recessionary trends in developed economies and the high price of commodities.
According to figures issued by the commerce ministry on Tuesday, July saw a five-month low for merchandise exports of $35.2 billion and a sequential fall in imports to $66 billion. Seven of the top 10 export items experienced a decline. Engineering goods (2.5%), petroleum products (7.1%), gems and jewellery (5.2%), pharmaceuticals (1.4%), ready-to-wear apparel (0.6%), cotton yarn (28.3%), and plastics round out the list (3.4 per cent).
While others experienced rapid growth. Chemicals (7.9%), electronics (46.1%), and rice are among them (30.2 per cent). Gold’s price fell 43.6% to $2.4 billion among major imports after the Center increased the import tax on the metal last month. However, due to a resurgence in domestic economic activity and increased pricing pressure, imports of goods other than oil, diamonds, and jewellery increased 42.9%.
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India should be “worried,” according to Commerce Secretary B V R Subhramanyam, because recession worries are lurking in several of India’s biggest export markets, the US and Europe.
“We will be able to compensate for the hit from these two regions. The recently signed trade deals with the United Arab Emirates and Australia (and the upcoming deal with the UK) will boost exports. There can be exports of $15-16 billion to these two nations,” he said.
Apart from that, the rupee-denominated trade arrangements announced by the Reserve Bank of India will boost trade with Russia and Sri Lanka, he said.
“I see huge opportunities in Russian tea, telecom, pharmaceutical products, leather … In the next two months, I see $8-9 billion trade with Russia and Sri Lanka,” the commerce secretary said.
Subhramanyam said exports could go above $500 billion this fiscal year, adding that restrictions on exports of wheat, iron and steel, and petroleum products had reined in growth in shipments. “$1-2 billion worth of wheat has been retained domestically. Our domestic food security is important but this has reduced the export figures,” he added.
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India reached $421 billion at the end of the last fiscal year, exceeding the $400 billion goal in 2021–22. According to Mahesh Desai, chairman of India’s Engineering Export Promotion Council (EEPC), the recessionary trends in advanced economies would have an effect because the US and Europe were among the top markets for Indian engineering products.
“The muted engineering exports in June were a reflection of weakening demand in these markets. There has been subdued demand from China and in recent months shipments have fallen. All in all, the situation remains delicate in the wake of the prevailing geo-political and economic situations,” he added.
The United Nations Conference on Trade and Development in its latest “Global Trade Update” said most of the merchandise trade growth was nominal and the positive trend for international trade might soon come to an end.
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“Rising interest rates and the winding down of economic stimulus packages will likely have a negative impact on trade volumes for the rest of 2022. Volatility in commodity prices and geopolitical factors will also continue to make trade developments uncertain. The conflict in Ukraine is putting further upward pressure on the international prices of energy and primary commodities. In the short term, because of the inelastic global demand for food and energy products, rising food and energy prices would likely result in higher trade values, and marginally lower trade volumes,” it added.
The large trade deficit in July did not bode well for the extent of the current account deficit in Q2 FY23, according to Aditi Nayar, chief economist at ICRA.
“The current account deficit is likely to have crossed $30 billion in Q1 FY23, a fallout of higher commodity prices, equivalent to around 80 per cent of the full-year figure for FY22. Lower commodity prices should temper the trade deficit although the strength of merchandise and services exports in the face of the global slowdown fears remains crucial,” she added.
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