Economy / India posts trade deficit of $4.83 bn in July; exports fall by 10.2%

New Delhi: India returned to a trade deficit of $4.8 billion in July after a month of trade surplus in June as gold imports ($13.4 billion) shot up during the month as investors looked for a safe haven amid economic uncertainty due to the coronavirus pandemic.

Data released by commerce ministry showed in July, merchandise exports fell for the fifth consecutive month by 10.2%, while imports dipped 28.4%.

In June, India recorded a trade surplus of $790 mn in June for the first time in more than 18 years as the domestic demand slump following the coronavirus outbreak hit imports harder than exports.

Aditi Nayar, principal economist at ICRA Ratings said the rare trade surplus seen in June predictability vanished with some recovery in merchandise imports in July, which stamped out the further improvement in merchandise exports. “This trend is likely to strengthen in the coming months, as demand for non-oil non-gold imports starts to normalise, gold imports gather steam around the festive months, and crude oil demand and prices stabilise at a moderate level," she said, adding that she expects that a large current account surplus in June quarter of FY21 will give way to modest surpluses in the subsequent three quarters.

India’s current account balance recorded a surprise marginal surplus at 0.1% of gross domestic product (GDP) in the March quarter, against 0.4% in the December 2019 quarter, after a gap of 12 years because of a lower trade deficit and a sharp rise in remittance inflows. The significant slump in domestic economic activity because of the lockdown imposed to prevent the spread of coronavirus significantly curtailed imports and India’s current account balance is expected to turn surplus in FY21.

Exports of 16 out of 30 major items turned positive during July. The narrowing of exports contraction was led by growth in exports of engineering goods (8.5%) pharmaceuticals (19.5%), iron ore (39.6%), rice (48%) and cotton yarn (7.4%). However, sharp contraction in exports of petroleum products (51.5%), gems and jewellery (49.6%), leather products (27%), marine products (20%), readymade garments (22.1%) kept improvement in exports performance subdued.

Among the 30 major items, imports of only fruits and vegetables (2.95%), fertilisers (7.8%), project goods (79.9%), pharmaceuticals (22%) and gold (4.2%) turned positive. The reversal in gold imports from a 77.4% decline in June signals its increasing attractiveness for an alternative investment avenue in the times of economic uncertainty. While import of crude petroleum by 32% continued to weigh down import performance, dip in imports of machine tools, machinery and transport equipment signaled that private investment is yet to pick up in the domestic economy.

Prahalathan Iyer, chief general manager, Research & Analysis at Exim Bank said contraction in import of non-oil and non-gold items remains worrisome. “Non-oil, non-gold imports, which is an indication of future manufacturing activity contracted by 29% in the month of July. This shows that the partial lockdown and locational lockdown still play a role in restricting the manufacturing activity in many industrial pockets," he added.

In April, the World Trade Organization had projected global merchandise trade to drop by 13% to 32% in 2020 because of the pandemic. In June, WTO said initial estimates for the June quarter, when the virus and associated lockdown measures affected a large share of the global population, indicate a year-on-year drop of around 18.5%, closer to the optimistic assessment.