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Trade Deficit of India Decelerates, Boosted by Import Drop

In September, India witnessed a contracted trade deficit, chiefly as imports experienced a substantial decline, and exports also demonstrated a continuous downtrend in the midst of doughy demand in China and the West.

A Decrease in the Flow of Goods

In September 2023, exports of goods exhibited a slight drop of 2.59% to approximately $34.47 billion compared to $35.39 billion the previous year. The decline in imports was sharper at 15%, reducing from $63.37 billion to $53.84 billion a year later. As a result, the trade deficit shrank to $19.37 billion, a decrease of over 30% from $27.98 billion in the year-ago period, according to data compiled by the commerce ministry.

A Positive Light for the Current Account Deficit

Aditi Nayar, ICRA Ltd’s Chief Economist, commented on the notable compression of India’s merchandise trade deficit to $19.4 billion in September 2023, down from $28 billion the same month the previous year. This was primarily due to a remarkable contraction in imports as a result of reduced commodity prices. Nayar suggested that the lower-than-anticipated merchandise trade deficit is encouraging for the current account deficit (CAD) for Q2 FY24. However, the CAD appears likely to expand relative to Q1 levels, with crude oil price instability amid geopolitical tensions posing risks to the CAD outlook for H2 FY2024.

Impact of Export Restrictions

The country’s outbound trade has been impacted by export restrictions, particularly on food items such as cereals and rice. Exports in the ‘other cereals’ category plummeted by over 50% compared to the previous year. Rice exports slumped 25%, while the exports of leather products dropped 21.2%, and spices fell 19.5%. Gem and jewelry export decreased by 16%, and petroleum products declined by nearly 11%.

Unique cases were observed in the exports of electronic goods and tea, which have been expanding but encountered a decrease of 3.69% and 3.03% respectively. On the flip side, the exports of engineering goods saw an upsurge of 6.79%, ceramic products and glassware soared 50.49%, cotton yarn and handloom products grew 27.39%, and meat, dairy, and poultry products, along with drugs and pharmaceuticals, increased by 19.4% and 9.01% respectively.

A Glimpse of Optimism

Sunil Barthwal, the Commerce Secretary, commented on the current state of exports, pointing out that despite a relatively bleak global landscape, they witnessed signs of recovery last month, as confirmed by the September data. The WTO expects the growth rate to recede, but if it still grows amidst this, it is indeed good news for India.

Santosh Kumar Sarangi, the Director General Foreign Trade (DGFT), hinted at a new “import management system” set to kick in starting November 1 following several consultations with stakeholders carried out by the ministry of electronics and information technology (Meity) and DGFT.

Source: www.livemint.com