Trade deficit widens to 5-yr high in July; exports grow by 14.3%

A sharp rise in the crude oil bill led to India’s trade deficit widening to a 62-month high in July, despite exports growing by 14.32 per cent. After months of contraction, export grew, helped by engineering, chemical products, and gems and jewellery.

The trade deficit increased to $18.02 billion in July, up from $16.61 billion in June. This was primarily fuelled by a jump in the crude oil import bill, which rose more than 57 per cent to $12.35 billion in July, up from $7.84 billion a month back. 

A broad based hardening of the international crude price has led to the trade deficit rising every month in 2018-19. 

Total imports stood at $43.79 billion in July, $44.3 billion in June when it had seen a 21.31 per cent rise. This will put pressure on the current account deficit in the second quarter of the current financial year, after it stood at 1.9 per cent of gross domestic product (GDP) in the fourth quarter of 2017-18, compared to 2.1 per cent in the quarter before.

The cost of the overall oil imports is expected to grow in the coming months. Experts predict India’s oil bill will continue to rise in the current financial year as external pressures, such as the fall-out of the Iran deal and a possible cut in production by oil producers, increase prices. 

Growth of non-oil non-gold merchandise imports also remained in double-digit in July, driven by inputs such as machinery, coal, chemicals, fertilisers, iron and steel, and non-ferrous metals, as well as electronic goods.

However, India continued to take advantage of the same rising global crude prices on the exports side, as receipts from processed petroleum exports swelled by 30.08 per cent to $3.9 billion. This was lower than 52.53 per cent growth in June and 102 per cent growth in May.

 

Despite the country sending out $25.7 billion worth of outbound shipments, July’s double-digit growth fell from 17.57 per cent in June. Among major sectors, engineering goods exports rose by 9.09 per cent, down from 14.19 per cent in June to ship out merchandise worth $6.32 billion. Pharmaceutical exports of $1.41 billion also slowed down, registering 2.2 per cent growth, down from 14.71 per cent rise in the previous month. 

On the other hand, gems and jewellery exports rose by 24.62 per cent, up from 2.72 per cent in June. Growth in June came after months of contraction, which had slowly been reducing over the past few months. 

As a result, gold imports also shot by more than 40 per cent to $2.96 billion in July, after remaining in the negative territory for six consecutive months. Imports of the shiny metal had remained low ever since news about the Rs 143-billion Nirav Modi scam broke earlier this year. 

Imports in June had fallen by 2.8 per cent as compared to the 29.85 per cent fall seen in May.

However, major labour-intensive sectors showed signs of built-up stress reducing and growth approaching. Export of readymade garments continued to contract in July, going down by 0.56 per cent in July, at a much slower pace than the 12.34 per cent fall in June. 

Industry experts pointed out that the sector has seen a downturn since October, 2017. 

“The small and medium enterprises are still reeling under pressure because of the liquidity crunch, as banks and financial institutions have continuously been tightening their lending norms and input tax credit refund for exports still poses a challenge. We urge the government to soon come out with the World Trade Oraganization-compliant export strategy to give a boost to country’s exports sector,” Ganesh Kumar Gupta, president of the Federation of Indian Exports Organisation said.

Of the 30 major product groups, 21 recorded growth in July, down from 22 a month ago.


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