India a small net exporter after 18 yrs even as merchandise shipments dip

Country may see current account surplus for the second quarter in a row in Q1 of FY21

The country saw a minor trade surplus in June for the first time in 18 years even as merchandise exports continued to shrink for the fourth month in a row, albeit at much lower rate than the preceding three months.

Exports of $21.91 billion and imports of $21.11 billion resulted in a surplus of around $800 million in trade balance in June. India is generally a net importer, and the country had a trade surplus last in January 2002, when it stood at $10 million. 

However, India is a net exporter in services. If one sees estimated services figures, there was a surplus of $6.84 billion in June, with exports standing at $16.48 billion and imports at $9.64 billion. If both goods and services are combined, India had a surplus of $7.64 billion in June.

Merchandise exports fell by 12.41 per cent in the month, albeit at a much lower rate than the 36.47 per cent seen in May and 60.28 per cent in April, as the lockdown was lifted.

Petroleum products, textiles, electronic goods, and engineering goods, among other items, showed contraction. However, drugs and pharma, crucial during the Covid-19 pandemic, saw a growth of about 10 per cent.

Meanwhile, imports fell by a whopping 47.59 per cent in June. This contraction was also at a rate lower than 51.05 per cent in the previous month, and 58.65 per cent in April. 

Imports of gold, petroleum products, engineering goods, coal and machinery shrank. Non-oil, non-gold imports declined by 41.37 per cent in June, compared with 43.13 per cent in May. This indicates that a recovery in industrial production will take time. 

The index of industrial production declined by 34.7 per cent in May, though lower than the 57.6 per cent seen in April. Non-oil non-gold imports are a broad indicator of industrial activities and there is no one-to-one relationship between the two as imports are at current prices and IIP is calculated with the base year of 2011-12. Besides, imports are expressed in dollar terms, so the exchange rate also has an impact on them.

As such, economists are not enthused by the trade surplus.

“The underlying dynamics of this trade surplus remain unpalatable, given the implications for the strength of domestic demand,” said Aditi Nayar, principal economist at ICRA.

She said the contraction in merchandise imports remained widespread in June, with a few categories — like medicinal and pharmaceutical products, vegetable oils and pulses — warding off contraction, suggesting that domestic demand remained constrained even during the unlocking phase. 

Merchandise exports for the first quarter of financial year 2020-21 (Q1FY21) stood at $51.32 billion, declining by 36.7 per cent year on year, while imports at $60.44 billion shrank by 52.43 per cent. As such, the trade deficit stood at $9.12 billion, almost 80 per cent lower over $45.96 billion in the year-ago period. The combined surplus, the surplus of $20.82 billion in services, stood at $11.70 billion in Q1, against a deficit of $26.32 billion in the corresponding period of the previous year.

When one looks at current account balance, there are remittances as well. However, Nayar said inward remittances would be severely impacted by the ongoing uncertainty. 

“Balancing these contrasting trends, we expect a current account surplus of around $14-16 billion in Q1FY21,” she said.