Trade deficit falls to three-month low of $19.8 billion in December

India’s trade deficit in December narrowed to a three-month low of $19.8 billion amid an import slowdown due to falling commodity prices.

Merchandise exports during the month grew 0.97 per cent over a year earlier to $38.45 billion, contrary to the trend of a slowdown so far this financial year, showed data released by the commerce department on Monday. Merchandise imports, meanwhile, grew 8.45 per cent to $58.25 billion, boosted by gold imports.

In what came as a surprise, however, disruption in cargo movement due to security concerns caused by Iran-backed Houthi rebels in the Red Sea region did not have a massive impact on outbound shipments from India.

 

Higher demand for engineering goods, electronic products, and drugs & pharmaceutical products aided growth in outbound shipments from India, said government officials.

Commerce Secretary Sunil Barthwal said India moved into a positive territory in terms of exports, ‘beating global trends’, though there was a need to see how the Red Sea situation would pan out. The region is vital for 30 per cent of global constrained traffic and 12 per cent of global trade.

“There has been a major decline in trade deficit, but we are still facing adverse conditions. We are beating global trends and hope to do so in the fourth quarter as well. We are waiting and watching what is happening in the Red Sea (region). There will be some negative impact, which we will take stock of next month,” Barthwal said.

In value terms, barring August and December, monthly outbound shipments from India have remained in the $33-34 billion range since April this year, significantly lower than those in the same period last year. India’s exports during April-December this financial year have contracted 5.7 per cent year-on-year to $317.12 billion, and imports have declined 7.9 per cent to $505.15 billion.

ICRA Chief Economist Aditi Nayar said India’s merchandise trade deficit in December printed lower than the agency’s estimate of $22.7 billion, thanks to better exports than expected. “Given this, we expect the current account deficit (CAD) to be Rs $16-18 billion in the December quarter of FY24, lower than our earlier estimate of over $20 billion, albeit nearly twice the reading seen in the September quarter,” Nayar said.

Exports of non-petroleum, non-gems & jewellery — also known as core exports — grew 5.4 per cent during the month to $28.67 billion, while core imports declined 0.2 per cent to $37.96 per cent.

India’s merchandise exports shrank in 13 of the 30 sectors in December. Key export items that saw a decline included petroleum products (17.61 per cent), readymade garments (12.56 per cent), and organic & inorganic chemicals (11.43 per cent).

Among key sectors that witnessed growth included gems & jewellery (11.97 per cent), drugs & pharmaceuticals (7.33 per cent), and electronics goods (1.04 per cent).

Merchandise imports contracted in 15 of the 30 items, including petroleum products (22.77 per cent), transport equipment (55.11), and precious stones (11.73 per cent).

Gold imports grew 156 per cent to $3.03 billion. Barthwal said: “The normal trend is between $3 billion and $4 billion. It came down to the $3 billion mark in December. There’s no pattern of a particular month here (of surge in gold imports), but we will definitely look into this. If you look at the overall trend, there is not much difference.”

Director General of Foreign Trade Santosh Sarangi said the increase in gold imports and gems & jewellery exports might be partly explained by the import of gold using the advance authorisation scheme and re-export of gold jewellery after value addition. “Gold is coming through the advance authorisation route, mostly gold bars. It is then going out after conversion into jewellery. In some cases these are done by taking advantage of the rupee Vostro account that the Reserve Bank of India (RBI) allowed in July 2022.”

Most of these imports were from the United Arab Emirates (UAE), he added, but clarified that such a rise in imports could have happened with or without a trade deal between India and the UAE.

Services exports in December contracted 10 per cent to $27.88 billion, and services imports declined 16.1 per cent to $13.25 billion — leading to a surplus of $14.63 billion. The services trade data for the month, however, is an ‘estimation’, and will be revised based on the official numbers from the RBI.