As a result, merchandise trade
deficit remained relatively low at $11.2 billion, slightly lower than November’s $12.1 billion. Cumulative trade
deficit reached $118 billion till December. “The decline in the merchandise trade deficit in December 2019 relative to December 2018 was driven by the relatively broad-based contraction in imports, led by industrial inputs such as coal, chemicals, iron and steel, and non-ferrous metals, transport equipment, and consumer items such as precious and semi-precious stones,” said Aditi Nayar, principal economist at ICRA.
Government data showed that exports stood at $27.36 billion in December, and 19 of the 30 major export
sectors saw contraction. Critically, processed petroleum outflows continued to take a beating, with receipts falling by 4.2 per cent in December to $3.8 billion. But the pace of contraction was lower than November's 13 per cent.
For gems and jewellery, exports reduced by 8 per cent to just $2.8 billion in December. The sector has faced a slowdown since last year but saw growth in October, when exports rose 6 per cent.
Meanwhile, engineering exports saw a contraction of 1.2 per cent in December, after a 6 per cent rise in November. The sector, which accounts for 25 per cent of the forex earned, had broken a long spell of contraction in October. “Rising domestic inflation is bringing additional pressure and affecting our global competitive strength,” Ravi Sehgal, chairman of Engineering Export
Promotion Council, said.
Elsewhere, apparel exports saw nominal growth of 2.4 per cent, while electronics (30 per cent) and pharmaceuticals (13 per cent) also posted growth. Despite this, exports of non-oil and non-gems and jewellery products contracted by 0.5 per cent in December, after the modest growth seen in the previous two month.
“Domestic issues, including uncertainty over the Merchandise Exports from India Scheme (MEIS), were a major cause of concern as exporters' claims are pending for over five months, which has completely wiped out their liquidity and has kept them in doldrums with regard to finalising new contracts,” said Sharad Kumar Saraf, president of the Federation of Indian Export
Organisations. Service exports, however, continued to grow, rising 8 per cent in November to earn $17.9 billion in November and taking total earnings in the current fiscal to over $150 billion.
The largest component of the import
bill – crude oil – saw the cost of inbound shipments fall by 0.3 per cent to $10.6 billion, as compared to $11 billion in November. Crude oil imports had shown significant reduction in value terms throughout FY20 with global prices tanking.
However, gold, the second-largest item in the import bill, continued to fall. Incoming gold shipments narrowed by a moderate 4 per cent after massive drops of 50 per cent, 62 per cent, and 42 per cent in previous months, respectively. Non-oil and non-gold imports – a sign of domestic industrial demand – fell for the fourteenth month, contracting 12.2 per cent. Experts said they expect the current account deficit to dive to $3-5 billion in the quarter, compared to US$18 billion in FY19.
The rise in gold prices is expected to continue to constrain demand in the ongoing quarter, despite the favourable outlook for rabi harvest, which would continue to curtail the size of the current account deficit, Nayar said.