Exports contract for sixth straight month, trade deficit shoots up

While imports contracted by 0.7 per cent, the rate of fall was significantly lower than the 8.9 per cent contraction in inbound trade seen in December

Exports contracted for the sixth straight month in January as major foreign exchange earning sectors such as engineering goods, jewellery, and textiles continued to be plagued by broad-based contraction even as petroleum exports picked up.

Data released on Friday by the commerce department showed outbound trade contracted by 1.6 per cent in January, slightly lower than December’s 1.8 per cent fall. Exports have fallen in seven of the 10 months of financial year 2019-20 (FY20). Till January, cumulative exports stood at $265.3 billion, 1.9 per cent lower than in the corresponding period in the previous financial year.

On the other hand, January figures offered respite to officials who have been concerned about falling imports. While imports contracted by 0.7 per cent, the rate of fall was significantly lower than the 8.9 per cent contraction in inbound trade seen in December. Overall, India imported $399 billion worth of goods during the April-January period, 8.1 per cent lower than the previous year.

But trade deficit shot up in January, crossing $15 billion, up from $11.2 billion in November. “The increase in deficit relative to the average of US$11.5 billion for the previous quarter, has primarily been led by a sharp rise in crude oil imports, which would subside in the current month following the considerable correction in crude oil prices,” said Aditi Nayar, principal economist at ICRA.

Government data showed that exports stood at $25.9 billion in January, with 17 of the 30 major export sectors seeing contraction, down from 19 in the previous month. Critically, processed petroleum outflows — India’s largest export — grew after a long time, rising 2 per cent. Petroleum exports had fallen 8 per cent in the previous month.

For gems and jewellery, exports reduced by 11.5 per cent, to just $2.8 billion in January. The sector has faced a slowdown since last year, reducing by 8 per cent in December.

Meanwhile, engineering exports saw worsening number of shipments in January as the sector saw a 4 per cent contraction, after a 1.2 per cent fall in December. The sector, which accounts for 25 per cent of the forex earned, had broken a long spell of contraction in October but has remained unsteady since. “Going forward, the situation looks more challenging with huge uncertainties arising from the outbreak of coronavirus in China,” said Ravi Sehgal, chairman of Engineering Export Promotion Council.

Elsewhere, apparel exports contracted again, reducing by 5 per cent after a nominal growth of 2.4 per cent last month.

However, electronics (32 per cent) and pharmaceuticals (12 per cent) continued to post growth, both rising marginally over the previous month.

“Apart from the Coronavirus outbreak, domestic issues, including uncertainty over MEIS (Merchandise Exports from India Scheme) has been a major concern as exporters’ claim for about six months are still pending, 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.

Crude rise

The largest component of the import bill – crude oil – saw the cost of inbound shipments rise by 15 per cent to $12.9 billion after a 0.3 per cent fall in December. Crude oil imports had shown significant reduction in value terms throughout FY20 as global prices tanked.

However, gold, the second-largest item in the import bill, continued to fall. Incoming gold shipments fell by 32 per cent per cent, continuing the massive drops in previous months.

Non-oil and non-gold imports – an indicator of domestic industrial demand – fell for the fifteenth month, contracting 4.7 per cent, albeit much lower than the December’s 13 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.

Commodities such as coal, iron and steel, chemicals and non-ferrous metals recorded a decline in January, even as imports of project goods and machinery recorded a substantial rise. Economists say this shows low demand for both consumer and industrial items — the hallmark of a slowdown.