Indias trade deficit widens to 7month high exports up 9 in May | Economy & Policy News

India’s merchandise trade deficit widened to a seven-month high of $23.78 billion in May due to burgeoning imports, particularly of petroleum, vegetable oils, and transport equipment.

The data released by the commerce department on Friday showed merchandise exports grew 9.13 per cent to $38.13 billion while imports rose 7.7 per cent to $61.91 billion.

Petroleum products, which constitute nearly32 per cent of India’s imports, grew 28 per cent to $19.95 billion.

Union Commerce Secretary Sunil Barthwal said the trade deficit was not “bad” if it was accompanied by steady inflows of foreign direct investment and foreign exchanges.

“When your economy is growing faster than the world (economy), then there will be higher demand for imports and higher charge on domestic production. So you will have less exportable surplus because most of the imported items will get into domestic (market) … it will depend upon two factors — import substitution and the rate of economic growth,” he added.

Apart from petroleum products, items that drove import growth include transport equipment (31.88 per cent), silver (408 per cent), vegetable oils (27.5 per cent), and pulses (181 per cent).

On export, Barthwal expected the positive growth trend to continue.

“It’s a good omen after the new government has joined that our (merchandise) exports have grown … more than $3 billion (in terms of value) in one month. This is a reflection of the fact that inflation in major advanced economies has slowed. With inflationary pressures coming down in advanced countries, there will be higher purchasing power … this will raise demand for (their) imports,” Barthwal said.

Export growth was driven by demand for petroleum products (15.75 per cent), engineering goods (7.39 per cent), electronic goods (22.97 per cent) as well as textiles (9.84 per cent).

Exports other than petroleum and gems and jewellery, an indication of a clearer parameter of the health of outbound shipments, saw a moderate growth rate of 8.8 per cent year-on-year at $28.6 billion.

Aditi Nayar, chief economist at ICRA, said the merchandise trade deficit widened due to a jump in net oil imports.

“In sequential terms, 71 per cent of the enlargement in the merchandise trade deficit in May 2024 relative to April 2024 was driven by the net oil balance, with a sharp rise in volumes amid some cooling in prices. With the merchandise trade deficit enlarging by $6 billion in April-May 2024 relative to the year-ago months, we expect the current account deficit to rise to 1.5 per cent of gross domestic product (GDP) in this quarter from 1.1 per cent of GDP in Q1 FY2024,” Nayar said.

Services exports saw 11.7 per cent growth at $30.16 billion in May while services imports saw 8.8 per cent increase to $17.28 billion, resulting in a surplus of $12.88 billion.

The services trade data for May, however, is an “estimate”, which will be revised based on the Reserve Bank of India’s subsequent release.

Federation of Indian Export Organisations President Ashwani Kumar expects exports to show better growth numbers with improved demand in the European Union, the United Kingdom (UK), West Asia, and the United States, which has given a boost to order bookings by over 10 per cent and has come as a sign of recovery for labour-intensive sectors of exports.

“Addressing the West Asian geopolitical situation and Red Sea crisis challenges by ensuring availability of marine insurance and rational increase in freight charges is essential. The sector also needs easy and a low cost of credit, marketing support and conclusion of some of the free-trade agreements with the UK, Peru, and Oman soon,” he said.

First Published: Jun 14 2024 | 9:31 PM IST

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