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India’s merchandise exports and imports expanded for the second consecutive month in January, signalling a turnaround in domestic and external demand after the pandemic devastated the value of trade in Asia’s third-largest economy.

Imports expanded 2.05% last month while exports grew 5.37%, leaving a trade deficit of $14.75 billion, according to preliminary data released by the commerce ministry. Non-petroleum and non-jewellery imports grew 5.94%, signalling an increase in domestic activities.

“The rise in both merchandise exports and imports in January 2021 is heartening, signifying a continued strengthening of the domestic growth recovery. With the merchandise trade deficit having risen to $14-15 billion over the last two months, we expect the current account balance to slip back into a deficit in H2 FY21," Aditi Nayar, principal economist at ICRA Ltd, said.

Major export items that helped India’s outbound shipments turn the corner include drugs and pharmaceuticals (up 16.4%), engineering goods (18.69%), and iron ore (108.66%). A sharp contraction in readymade garments (-10.73%) and petroleum products (-37.34%) kept overall growth minimal.

The rise in imports was led by gold (154.7%), electronic goods (16.98%), and pearls (50.2%) while petroleum products (-27.72%) and transport equipment (-25.26%) continued to contract. Trade Promotion Council of India chairman Mohit Singla said the data suggests India’s trade has been on the path of quick recovery. “The global trade flow has been streamlining fast and bottlenecks caused by the pandemic are easing out gradually. Also, it is a reflection that Indian products have been sustaining their global demand despite challenges and the resilient efforts of our exporters have started bearing fruits again," he said.

India’s merchandise trade had been weakening even before the pandemic hit the economy and external demand. Exports were negative in 15 of the past 19 months starting June 2019. Since March 2020, 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 had declined by 21% in the June quarter. WTO now projects the volume of world merchandise trade to decline 9.2% in 2020, followed by a 7.2% rise in 2021. In April, it had projected global merchandise trade to drop by 13% to 32% in 2020 because of covid-19.

The International Monetary Fund (IMF), in its update to the World Economic Outlook last month, said consistent with recovery in global activity, global trade volumes are forecast to grow about 8% in 2021, before moderating to 6% in 2022. “Services trade is expected to recover more slowly than merchandise volumes, however, which is consistent with subdued cross-border tourism and business travel until transmission declines everywhere," it said.

The Indian economy is projected to contract by 7.7% in FY21 for the first time in 41 years with the National Statistical Organisation assuming 0.6% growth in the second half of FY21. The Economic Survey, however, has projected the economic to make a recovery in FY22 growing at 11% while the IMF has estimated 11.5% growth for the same year.

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