Official data released on Monday showed that India’s merchandise exports in June rose 16.8% on-year to $37.9 billion, slower than 20.5% in May, while imports rose at a faster 51% to $63.58 billion. The trade deficit in June 2021 was $9.61 billion.
Ahead of the release, the Indian currency closed at 78.95 to the dollar on Monday.
The trade deficit during the first three months of this fiscal year widened to $70.25 billion from $31.42 billion in the year-ago period, according to data released by the commerce and industry ministry. “As recession in the developed world is reducing demand for global goods exports, the WTO has already reduced its forecast and that is being reflected in Indian exports. Because of high dependence of India on oil imports, it has led to trade deficit rising,” said India Ratings and Research chief economist DK Pant.
Balance of Payments Deficit
“We expect the CAD at 3% of GDP but more worrying is the balance of payments deficit at $45-50 billion,” Pant told ET.
The falling rupee is expected to expand the trade deficit further since a weaker domestic currency makes imports costlier, adding to inflationary pressures.
Export growth moderated due to the base effect, some correction in commodity prices and global growth concerns. Imports exceeded expectations, led by crude and coal, underscoring India’s import dependence and vulnerability to fuel price movements, Nayar said.
“The recent measures taken by the government, particularly the import duty on gold, should help prevent the current account deficit from crossing 3% of GDP,” she said.
The government has hiked the gold import duty to 15% from 10.75% to rein in the CAD and rising imports besides imposing a windfall tax on domestic crude producers like ONGC that were benefiting from high international prices. Economists said discounted oil imports from Russia could help relieve the pressure going ahead. “Reducing non-oil and non-gold imports is not ideal because that impacts domestic demand,” said Sakshi Gupta, principal economist, HDFC Bank. “The lower gold duty will be a deterrent for imports but going ahead, some clarity on oil imports from Russia would give relief.”
Oil imports rose 94.17% in June while gold imports were up 169.5% on-year. Coal, coke and briquettes imports jumped 241.81%.
“There is a need to further push value-added exports, augment container manufacturing, develop an Indian shipping line of global repute, increase the validity of incentive schemes’ scrips to 24 months and link transferability with realisation,” said A Sakthivel, president, Federation of Indian Export Organisations. He also suggested extending the remission of duties and taxes on exported products (RoDTEP) scheme to export oriented units (EOUs), special economic zones (SEZs).