Statsguru: Six charts explain why India's trade deficit is widening

The International Monetary Fund (IMF) recently revised the global growth projection downward and reduced this year’s forecast from 3.6 per cent in April’s projection to 3.2 per cent in its July update of the World Economic Outlook. In October 2021, the international body had projected 4.9 per cent growth in world output for 2022 (chart 1). 

The revision in trade forecasts is even starker. While the IMF projected trade in goods and services to grow at 6.7 per cent in 2022 in its October report, the latest projection envisages growth of 4.1 per cent (chart 2). As global growth and trade outlook moderate, so do India’s prospects.

The IMF revised India’s growth downward, and data from the commerce ministry show that the trade deficit is widening. In July 2022, the merchandise trade deficit widened further to $31.02 billion (chart 3). 

For the April-July period, India’s trade deficit was over $100 billion. Although exports are still higher compared to last year, the July reading shows that they were at a five-month low (chart 4). Imports, on the other hand, have been rising. In July 2022, India imported $66.3 billion worth of goods. Imports have averaged $63.2 billion per month in the first quarter of 2022-23, compared to $42 billion in 2021-22 (chart 5).

Services exports, however, are showing resilience. In the first quarter of 2022-23, service exports averaged $23.7 billion per month, up 30 per cent compared to the same period last year. Imports averaged $15.12 billion per month. The total service trade balance in the April-June period was $25.62 billion (chart 6). 

A report by Bank of America Securities projected India’s current account deficit to touch $105 billion in 2022-23, which will translate into 3 per cent of gross domestic product (GDP). Last year, India’s current account deficit was 1.2 per cent of GDP. The last time India’s current account deficit was higher than 3 per cent was in 2012-13 at 4.8 per cent of GDP.