Trade deficit at 10-month high on decline in exports

  • Exports fell 8.7% while imports contracted 13.3% in Nov, leading to deficit of $9.9 bn

Asit Ranjan Mishra
Published16 Dec 2020, 07:41 AM IST
The volume of world merchandise trade will decline 9.2% in 2020, followed by a 7.2% rise in 2021, projects WTO. Mint
The volume of world merchandise trade will decline 9.2% in 2020, followed by a 7.2% rise in 2021, projects WTO. Mint

India’s outbound shipments contracted for the second consecutive month in November as the second wave of the coronavirus pandemic hit consumer demand in its largest markets in Europe.

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

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

Major items that affected India’s exports performance include petroleum products (-59.7%), engineering goods (-8.1%), chemicals (-8.1%), and readymade garments (-1.2%), while pharmaceuticals (11.1%), gems and jewellery (4.1%), and electronic goods (1%) registered growth. Items that drove imports and trade deficit include non-ferrous metals (9.1%), chemical products (36.1%), electronic goods (12.3%), fertilizers (29.3%), and gold (2.7%).

The slide in non-oil exports growth was led by renewed restrictions in trading partners that outweighed the optimism related to an early availability of covid-19 vaccines, according to Aditi Nayar, principal economist, ICRA Ltd. “This trend may continue in the winter, 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 said.

The current account surplus is expected to decline substantially in Q3 FY2021 and Q4 FY2021 from $19.8 billion in Q2 as domestic recovery strengthens, Nayar said. “Overall, ICRA expects India’s current account balance to post a sizeable surplus of $35-40 billion or around 1.5% of gross domestic product (GDP) in FY21, in contrast to the deficit of $25 billion or 0.9% of GDP in FY20,” she said.

India’s merchandise trade has been weakening even before the pandemic hit the economy and external demand. In 15 of the past 17 months starting June 2019, exports have declined. However, since March this year, both exports and imports began to fall in high double-digits, even temporarily leading to a trade surplus in June for the first time in 18 years.

Global merchandise trade declined by 21% in the June quarter, data compiled by the World Trade Organization (WTO) showed. The volume of world merchandise trade will decline 9.2% in 2020, followed by a 7.2% rise in 2021, according to WTO projections. In April, the trade body had said that global merchandise trade would drop 13% to 32% in 2020 because of the pandemic.

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