India Aug trade deficit at $28bn; weak global demand weighs on exports

MUMBAI (ICIS)–India posted a trade deficit of $27.9bn in August, with export growth on a year-on-year basis lagging far behind imports’ double-digit increase amid the global economic slowdown.

The deficit more than doubled compared with $11.7bn in the previous corresponding period, but off the record high of $31bn in July 2022.

• August fertilizer imports surge 77%; artificial resins, plastic materials imports  up 47.5%
• Year-to-March 2023 export growth to slow to 11% from 43.8%
• Rupee-based settlement to boost trade with Russia

August merchandise exports inched up 1.62% year on year to $33.9bn, coming from a 0.8% contraction in the previous month, indicating weakness in global demand.

Imports jumped 37.3% to $61.9bn, largely due to a combination of higher energy prices and the depreciation of the Indian rupee against the US dollar. The number represents a deceleration from the 43.6% increase posted in July.

“Rising inflation and pile-up of inventories in all major economies have affected purchasing power, thus hitting global demand,” Federation of Indian Export Organisations (FIEO) president A Sakthivel said in a statement issued on 14 September.

In the first five months to August 2022 of India’s current fiscal year ending in March 2023, the trade deficit widened to $124.5bn from $53.78bn in the previous corresponding period..

Total merchandise exports for the period were up 17.7% year on year at $193.5bn, while imports surged by 45.7% to $318bn.

In August, exports of petroleum products rose by 23% year on year to $5.7bn, while organic and inorganic chemical shipments grew 13.5% to $2.5bn.

Shipments of drugs and pharmaceutical increased by 7% to $2.1bn, while those of manmade fabrics and yarn declined by 8.9% to $419m. Plastics exports fell by 1.1% to $747m in August.

Imports of crude petroleum and products for the month continued their strong upward trend, registering an 87.4% jump year on year to $17.7bn.

Fertilizer imports surged 77% to around $1.5bn, while imports of organic and inorganic chemicals increased by more than 43% to nearly $3bn.

India’s imports of artificial resins and plastic materials were up by 47.5% at $2bn last month.

Coal imports in August more than doubled to $4.5bn from $1.9bn in the same period last year.

The slowdown in global demand and the continuing conflict in Ukraine may cause India’s merchandise exports to grow at a slower pace during the current financial year 2022-23, said trade body FIEO director general Ajay Sahai, forecasting a full-year exports growth of 11% to more than $470bn.

In the previous fiscal year ending March 2022, the south Asian giant emerging economy’s total exports stood at $419.7bn, registering a 43.8% growth.

Despite the slowdown in exports, there has been an increase in demand for low-value products which could help India’s micro, small and medium enterprises (MSME) sector, Sahai said.

MSME exporters expect to see an increase in medium- to long-term demand due to China’s zero-COVID policy, said Sakhtivel of FIEO.

“China is becoming costlier and less reliable with a zero-Covid tolerance policy. Lot of orders for low-value products, which were a monopoly of China, are now coming to India,” he added.

Trade with Russia is also expected to increase once India finalizes its rupee-payment mechanism.

State-owned State Bank of India (SBI) has agreed to facilitate trade in rupees with Russia, Sakthivel said.

“While SBI is the bank identified here, Russia will soon identify a bank for rupee trade. We have a good rupee payment mechanism in Iran, so same thing will happen with Russia,” he added.

The Reserve Bank of India (RBI) – the country’s central bank – had announced in July that it would soon introduce a mechanism to settle international trade in rupees to reduce the impact of the volatility in global currencies.

India’s exports to Russia have slowed down since the imposition of sanctions against the eastern European energy giant following its invasion of Ukraine in late February.

“The trade in rupees could boost Indian exports to Russia to about $5bn in the current financial year,” Sakhtivel said.

In April-July 2022, India’s exports to Russia stood at $714.35m, while imports were at around $13.4bn.

In the previous fiscal year, India’s exports to Russia stood at $3.3bn, official data show.

Focus article by Priya Jestin

($1 = Rs79.56)

Thumbnail image: At a port in Kolkata, India on 30 May 2021. (By Debarchan Chatterjee/NurPhoto/Shutterstock)

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