India's July trade deficit widens to record $31 bn; exports dip marginally

Gold imports declined 43.6% to $2.4 bn after the Centre raised import duty on gold last month to discourage buyers in the world's second-largest consumer

India’s trade deficit widened to a record $31 billion in July with a sequential decline in exports and somewhat flat imports owing to growing recessionary trends in developed economies and elevated commodity prices. The data released by the commerce ministry on Tuesday showed merchandise exports declined to a five-month low at $35.2 billion in July while imports eased sequentially to $66 billion.
 

There was a contraction in seven of the top 10 export items. They are engineering goods (2.5 per cent), petroleum products (7.1 per cent), gems and jewellery (5.2 per cent), pharmaceuticals (1.4 per cent), readymade garments (0.6 per cent), cotton yarn (28.3 per cent), and plastic (3.4 per cent).

However, some saw robust growth. They are chemicals (7.9 per cent), electronic goods (46.1 per cent), and rice (30.2 per cent). Among major import items, gold declined 43.6 per cent to $2.4 billion after the Centre raised import duty on the metal last month. However, imports of non-oil and non-gems and jewellery products grew 42.9 per cent, due to recovery in domestic economic activities as well as elevated price pressure. 

Commerce Secretary B V R Subhramanyam said with fears of recession looming in some of India’s largest export markets — the US and Europe — India should be “worried”.

“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.

India had surpassed the $400-billion target in 2021-22, closing the last financial year at $421 billion.

Engineering Export Promotion Council (EEPC) of India Chairman Mahesh Desai said since the US and Europe were among the top destinations for Indian engineering goods, recessionary trends in advanced economies would have an impact.

“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.

“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.

Aditi Nayar, chief economist at ICRA, said the sharp trade deficit in July did not augur well for the size of the current account deficit in Q2 FY23.

“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.