Home / News / India /  Exports grew 6% in Sept after six months of contraction, trade deficit narrows

India’s outbound shipments rose for the first time in seven months with merchandise exports registering a 6% growth in September—higher than 5.3% suggested by provisional data released earlier--driven mostly by an increase in demand for engineering goods, petroleum products, pharmaceuticals and readymade garments.

Exports rose to $27.6 billion, while imports contracted 19.6% to $30.3 billion, resulting in a trade deficit of $2.7 billion, according to data released by the commerce ministry.

In the six months ended 30 September, exports have declined 21.3% to $125.3 billion, while imports contracted 40.1% to $148.7 billion, creating a trade deficit of $23.4 billion.

India’s merchandise trade has been weakening even before the covid-19 pandemic hit the economy and external demand. In 13 of the past 15 months starting June 2019, the country’s exports have been negative.

However, since March of this year, both exports and imports started declining in high double digits, even temporarily leading to a trade surplus in June for the first time in 18 years.

Data compiled by the World Trade Organization (WTO) showed global merchandise trade declined by 21% in the June quarter. WTO now projects volume of world merchandise trade to decline 9.2% in 2020, followed by a 7.2% rise in 2021. In April, the trade body had projected global merchandise trade to drop by 13% to 32% in 2020 because of the pandemic.

Aditi Nayar, principal economist at ICRA Ltd said trade deficit fell in September compared to August due to pick up in exports as well as the sharp drop in gold imports. “The reasonably broad-based pickup in merchandise exports in September has come as a relief, and signals on its sustainability are anxiously awaited in light of the second wave of covid-19 infections being experienced in many trading partners," she added.

Gold imports dropped 53% in September to $601 million following sharp rise in July and August, while imports of machinery and transport equipments also saw steep declines, signaling weak domestic demand.

India’s economy contracted 23.9% in the June quarter, hit by the double whammy of a demand contraction and supply shock because of a countrywide lockdown considered to be the strictest in the world imposed to contain the spread of coronavirus. The International Monetary Fund has projected the Indian economy to contract 10.3% in FY21 while RBI has estimated the contraction at 9.5% during the year.

Nayar said the decline in gold imports in September suggests the pent up demand related to the lockdown period has been mollified. “However, imports may rise in the next two months with the festive and marriage season coming up, as well as the potential of a rise in rural demand after the kharif harvest," she added.

Prahalathan Iyer, chief general manager, Research & Analysis at India Exim Bank said the recovery in the export sector in September could only be considered as sustainable if there is also pick up in imports of non-oil, non-gold items. “Imports of non-oil items continue to be in the negative trajectory, which is a concern. We need to wait and watch the (exports) trend for a couple of months to see whether the growth is sustainable in second half of FY 21," he added.

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