India’s trade deficit in April expanded to a five-month high of $15.3 billion as gold imports surged more than 50% while merchandise exports lost the growth momentum of March amid rising trade tensions between China and the US.
Data released by the commerce ministry showed growth in exports slowed to a four-month low of 0.64% in April after a double-digit growth in March, while imports grew 4.5%.
In 2018-19, India’s exports grew 9.1% to $331 billion while imports grew 9% to $507.4 billion, causing a trade deficit of $176.4 billion.
China’s merchandise exports contracted 2.7% in April, while imports grew 4%, as the trade war with the US escalated.
The US dramatically escalated its 10-month-old tariff war with China on 10 May by raising tariffs on $200 billion of Chinese goods in the midst of trade talks. Trump threatened new levies on all remaining US imports from China, sending global financial markets into a tailspin. China has announced its intention to further raise tariffs starting 1 June on some of the $60 billion US exports it has already hit in September last year.
During April, India’s exports picked up in drugs and pharmaceuticals (4%), chemicals (15.1%), readymade garments (4.4%) and petroleum products (30.8%), while they contracted in gems and jewellery (-13.4%) and engineering goods (-7.1%).
Among major items of imports, gold (54%), petroleum products (9.3%), plastic materials (3.5%), iron and steel (11%), non-ferrous metals (1%), machinery (6.5%) and electronic goods (4%) expanded while transport equipment (-31.7%), chemicals (-0.1%) and precious stones (-8.9%) fell.
Ganesh Kumar Gupta, president of Federation of Indian Export Organisations said exports of almost all the labour-intensive sectors are in the negative territory. “There may have been front loading of exports in the past as exporters were apprehensive of withdrawal of GSP (Generalised System of Preferences) in US and developments in Iran. With rising trade tensions between US and China, the global trade scenario may further worsen, putting more pressure on Indian exports in months to come," he added.
Madhavi Arora, economist, Edelweiss Securities Ltd said even as India’s direct China exposure is limited, the indirect financial market linkages will ensure the rupee does not remain insulated from any market chaos. “We see India’s growth picture to remain sluggish and fiscal state to remain fragile even as balance of payments will likely be turning marginally positive in 2019-20. We maintain our view of mild rupee depreciation through the year and see rupee drifting towards 73.50 by end of calendar year 2019," she said.
IMF also cut its global growth forecast for 2019 by 20 basis points to 3.3%, the lowest since the 2008 financial crisis, blaming trade tensions between the US and China, loss of momentum in Europe and uncertainty surrounding Brexit.
The World Trade Organization (WTO) in March projected trade growth to slow from 3.9% in 2018 to 3.7% in 2019, cautioning that these estimates could be revised downward if trade conditions continue to deteriorate.
“This sustained loss of momentum highlights the urgency of reducing trade tensions, which together with continued political risks and financial volatility could foreshadow a broader economic downturn," WTO said.