The official data on India’s balance of trade for April has been released, and it makes for disquieting reading. While exports may have grown in April as they did in March, February and January, growth was barely there. At 0.64 per cent, it was the lowest year-on-year growth in exports seen so far this calendar year. While the numbers themselves may not be disquieting, the worry is that what appeared to be a modest revival in exports does not appear to be sustainable. Meanwhile, imports of gold shot up by as much as 54 per cent year-on-year, and oil by 9.3 per cent, driving overall imports up by 4.5 per cent. The trade deficit, correspondingly, rose to a five-month high of $15.3 billion.
Examining the data more closely provides little relief on two counts. First, non-oil, non-gold imports continued to shrink. In February 2019, they shrank by 1.9 per cent; in March 2019 by 2.7 per cent; and in April 2019 by 2.2 per cent. While this is not necessarily bad news, to the extent it reflects a broader narrative about weak consumer demand in India, it should be of concern. India’s growth story has rested for the past years on strong consumer demand, and multiple indicators — including now non-oil, non-gold imports — suggest this story has run its course. The increase in oil imports by value also may reflect the changes in oil prices globally and increased tensions between the United States and Iran. Meanwhile, the break-up of exports is even more worrying. While they may have grown overall, non-oil exports, in particular, shrank by 3.1 per cent. This reflects an unexpected and sharp contraction in engineering goods exports, which shrank for the first time after two months of growth. It had been hoped that the earlier growth was sustainable, but after the release of the April data, it is no longer possible to be sanguine about that.
Slow domestic demand may not be good news for growth, but it does mean that worries about the external account may not prove to amount to much in the coming months at least. Economists predict that the current account deficit in 2019 will fall to 2.1 per cent of gross domestic product as distinct from 2.4 per cent in 2018. Of course, if there is a particularly sharp spike in oil prices then all bets are off. But the real lesson of this data print is that exports from India, particularly in engineering, textiles and chemicals, will not revive without closer attention from policymakers. So far, the policy has focused on reducing imports through import substitution mechanisms and tariff policy. However, the most sustainable way of managing the trade deficit is through increasing exports — which will also create jobs and address the overcapacity problem faced by domestic manufacturing. While the complaints made by exporters about the mechanism by which the goods and services tax cut into working capital must be addressed, there are also stark choices to be made by the next government about how to drastically cut red tape and frictions at the border faced by exporters.