India's exports rise 25% YoY in February; trade deficit at $20.8 billion

Outbound shipments grew by a fourth year-on-year (YoY) with India exporting goods worth $34.57 billion in February, led by higher demand for petroleum products and engineering goods, the final trade data released by the commerce and industry ministry showed.

However, the trade deficit widened to $20.88 billion, after hitting a five-month low in January as the value of imported goods rose mainly due to the ongoing conflict between Russia-Ukraine and a rise in commodity prices.

Trade deficit was $15.1 billion in February last year and at $17.42 billion a month ago.

Imports, on the other hand, witnessed a 35 per cent jump YoY with shipments worth $55.45 billion coming into the country. Inbound shipments were led by petroleum and crude products, electronic goods and pearls, precious, and semi-precious stones.

Going ahead, experts said, the trade deficit could further widen, amid soaring international crude oil prices due to the ongoing geopolitical tensions.

“Import of petroleum crude and products account for 26 per cent of total imports as of April-February 2022. This is similar to the share that was prevailing in the pre-pandemic year 2019-20. While this is not an alarming ratio, the continuous growth in international crude prices would dent our balance of trade next year,” said Prahalathan Iyer, chief general manager ( research & analysis) at India Exim Bank.

“With a much sharper YoY growth in non-gold imports relative to aggregate merchandise exports, the merchandise trade deficit rose to $20.9 billion in February 2022 from $13.1 billion in the year-ago month. While higher commodity prices will inflame imports in March 2022, the volume of oil imports will play a key role in determining the size of the trade deficit. We expect the trade deficit to remain higher than $20 billion in this month,” said Aditi Nayar, chief economist at ICRA.

Nayar said a sharp rise in the trade deficit can result in the current account deficit (CAD) crossing 3 per cent in the third quarter of FY22, for the first time since the June 2013 quarter, before receding somewhat in the ongoing quarter.

“For FY23, we project the CAD at 2.8 per cent of gross domestic product if the crude oil price averages at $115/barrel, the likelihood of which will crucially depend on the duration of the geopolitical tensions,” she said.

As far as outbound shipments are concerned, during the first 11 months of the current fiscal year, goods worth $374.81 billion were exported, meeting over 93 per cent of its annual target of $400 billion in FY22.

Federation of Indian Export Organisations President A Sakthivel said merchandise exports are on course to exceed the $400-billion milestone, as monthly exports have crossed the $30-billion mark for the 11th consecutive month during the fiscal year.