Goods trade deficit swells to 10-month high in Aug

India’s merchandise trade gap swelled to the highest in 10 months in August as exports continued to slow due to weak demand in the West and China, even as sustained geo-political tensions keep inflation and interest rates elevated.

Commerce ministry data showed on Friday that exports slipped nearly 7% to $34.48 billion in August from $37.02 billion a year earlier. Meanwhile, imports declined to $58.64 billion from $61.88 billion last year, leaving the trade balance at $24.16 billion.

Exporters expressed worry over the plunge in shipments of gems and jewellery, and organic and inorganic chemicals, that fell 22% and 18% respectively. Easing global fuel prices impacted earnings from refined petroleum exports, resulting in a sharp 30% drop. Cereal exports also fell over 40% due to export restrictions to arrest domestic prices.

However, engineering goods exports recovered to register a growth of 8% in August after eight consecutive months of year-on-year decline. Official data showed that engineering goods exports stood at $9.05 billion in August 2023 as against $8.40 billion last year. Arun Kumar Garodia, chairman, Engineering Exports Promotion Council of India said various factors including a slowdown in key advanced markets and muted overall demand had led to lower exports of engineering goods in previous months.

Exports of electronic goods rose by 26.29% in August to $2.17 billion. During the April-August period, they rose by 35.22% to $11.18 billion. Further, services exports in August are estimated at $26.39 billion compared to $26.5 billion a year ago. Imports stood at $13.86 billion against $15.22 billion.Meanwhile, gold imports in August rose by 38.75% to $4.93 billion, and 10.48% to $18.13 billion during April-August 2023.

“Owing to the sharp sequential uptick in merchandise imports in August 2023, the merchandise trade deficit widened to a 10-month high of $24.2 billion in the month, while printing marginally lower than that seen in the year-ago levels. With the monthly merchandise trade deficit prints averaging much higher during July-August vis-à-vis April-June 2023, India’s current account deficit is likely to widen in Q2 FY2024 from the $10-12 billion expected in Q1 FY2024,” said Aditi Nayar, chief economist, ICRA Ltd.

Commerce secretary Sunil Barthwal said orders were beginning to pick up, and that the export pessimism was changing to optimism. However, demand from the European Union remains a concern in light of recent rate hikes, he added. Earlier this week, the European Central Bank raised rates to an all-time high of 4% amid the Russia-Ukraine war and continued oil production cuts by Opec countries.

A. Sakthivel, president, Federation of Indian Export Organisations, said a sluggish global economy and falling demand especially in major economies have led to the modest exports performance in recent months.

“Manufacturing across the euro zone and the US has contracted due to persistent policy tightening measures by both the US Fed and the European Central Bank squeezing finances, Sakthivel said. As Asian economies are showing mixed performance, countries across the continent have struggled to maintain the momentum. “The softening of commodity prices across the globe has also pulled down value-wise exports,” Sakthivel added.