India’s merchandise trade deficit widened sharply to a record $31.02 billion in July, as per preliminary trade estimates that peg imports during the month at $66.26 billon, or 43.6% higher than a year earlier.
Goods exports declined 0.8% year-on-year to $35.24 billion and were 12.8% lower than June’s exports. Imports were flat on a month-on-month basis from July.
July’s trade deficit, which is almost thrice the $10.63 billion deficit a year earlier, takes India’s merchandise trade deficit for the first four months of 2022-23 past $100 billion. The trade deficit stood at $42.07 billion in April to July 2021.
This is the third month in a row that the monthly trade deficit had breached previous records – May had clocked a deficit of $24.3 billion, followed by $26.2 billion in June.
The Commerce and Industry Ministry attributed the decrease in exports largely to a 7.07% fall in petroleum products, followed by a 28.3% dip in cotton yarn and handloom products, a 94.3% dip in iron ore and a 2.5% fall in engineering goods.
While coal and petroleum products continued to drive up imports, like they did in June, silver imports shot up exponentially in July. Petroleum imports rose 70.4%, while coal imports jumped 164.4% to cross $5.1 billion from just a little less than $2 billion a year earlier.
Silver imports were up 9,331.75%, and electronics goods also escalated 27.8%, the Ministry said. Gold imports, however, dropped sharply, both on a year-on-year and sequential bases. Only $2.37 billion worth of the yellow metal was imported in July, 43.6% lower than in July 2021 and 12.2% below June 2022 levels.
The sharp uptick in the trade deficit was unexpected and did not augur well for the current account deficit (CAD) in the second quarter, said ICRA chief economist Aditi Nayar. The CAD is likely to have crossed $30 billion in the first quarter of 2022-23, equivalent to about 80% of the full-year deficit last year.
“Lower commodity prices should temper the trade deficit going ahead, although the strength of merchandise and services exports in the face of the global slowdown fears remains crucial,” Ms. Nayar said, expressing concern that imports were almost double the exports in July. “The $20 billion increase in imports year-on-year was led by petroleum products and coal, negating the relief offered by a decline in gold imports,” she noted.
EEPC India chairman Mahesh Desai said the drop in engineering goods reflects weakening demand from U.S. and Europe amid recession concerns.
“There has already been subdued demand from China with shipments falling in recent months. All in all, the situation remains delicate in the wake of prevailing geopolitical and economic situations,” he said, adding that any gains from falling commodity prices could be negated by a drop in demand.