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India's exports dip 8.74% in Nov; trade deficit narrows to $9.87 bn

Since March of this year, both exports and imports started declining in high double digits (Bloomberg)Premium
Since March of this year, both exports and imports started declining in high double digits (Bloomberg)

  • Major Indian export items that dragged down growth include petroleum products (-59.7%), engineering goods (-8.1%), chemicals (-8.1%) and more
  • India’s merchandise trade has been weakening even before the covid-19 pandemic hit the economy and external demand

India’s outbound shipments contracted for the second consecutive month in November after recording positive growth just for a month in September, as the second wave of the coronavirus pandemic hit consumer demand in India’s largest markets in Europe.

Exports fell 8.7% while imports contracted 13.3%, resulting in a 10 month high trade deficit of $9.9 billion, according to revised trade data released by the commerce ministry.

China’s exports, in contrast rose 21.1% in November, the fastest growth since February 2018, while imports grew 4.5%, leading to a record trade surplus of $75.4 billion.

Major Indian export items that dragged down growth include petroleum products (-59.7%), engineering goods (-8.1%), chemicals (-8.1%), readymade garments (-1.2%) while pharmaceuticals (11.1%), gems & jewellery (4.1%), electronic goods (1%) registered positive growth. Items that drove imports and trade deficit include non-ferrrous metals (9.1%), chemical products (36.1%), electronic goods (12.3%), fertilizers (29.3%) and gold (2.7%).

Aditi Nayar, principal economist at ICRA Ltd said the slide in non-oil export growth was led by renewed restrictions in trading partners that outweighed the optimism related to an early availability of Covid-19 vaccines. “This trend may continue in the winter months, before an uptrend takes root in Q4 FY21. ICRA expects the size of the merchandise trade deficit to nearly double in Q3 FY21 relative to Q2 FY21, with imports recovering on the back of an improvement in economic activity, a rise in commodity prices and pick-up in demand for gold during the festive and marriage season," she added.

Nayar added that she expects current account surplus to decline substantially in Q3 FY2021 and Q4 FY2021 from its level of $19.8 billion in Q2 as the domestic recovery strengthens. “Overall, ICRA expects India’s current account balance to post a sizeable surplus of $35-40 billion or around 1.5% of GDP in FY21, in contrast to the deficit of $25 billion or 0.9% of GDP in FY20," she added.

India’s merchandise trade has been weakening even before the covid-19 pandemic hit the economy and external demand. In 15 of the past 17 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.

The pace of contraction in the Indian economy slowed in September quarter to 7.5% from a historic high of 23.9% contraction in June quarter. Since then many economic agencies have revised upward their growth forecasts for India. The Asian Development Bank has projected the Indian economy to contract at a slower pace of 8% against its earlier estimate of 9% in FY21 on the back of faster recovery in Asia’s third largest economy. The Reserve Bank of India (RBI) earlier this month projected the Indian economy to contract 7.5% in FY21, shallower than 9.5% contraction it projected just two months ago, on the back of a host of lead indicators, suggesting sustained economic recovery.

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