Trade deficit jumped to a record high of $22.59 billion in September compared to $13.3 per cent in the previous month due to huge imports of goods ahead of the festival season and hardening of commodity prices. This may have repercussions on the current account balance, which is set to give way to deficit at least in the second quarter against surplus in the first quarter of the current financial year.
The trade deficit rose so high as merchandise exports growth moderated to 22.6 per cent in September from 45.6 per cent in August and goods imports expanded by as much as 84.8 per cent compared to 51.7 per cent over this period.
The deficit widened by a staggering 663.48 per cent in September year-on-year. It was also higher by 93.6 per cent compared to a pre-covid month of September, 2019.
Aditi Nahyar, chief economist at Icra, said,"The sharp rise in the merchandise trade deficit in September reflects an element of inventory stocking ahead of the festive season as well as advancement of crude oil purchases in light of the looming hardening of prices."
Exports stood at $33.8 billion in September compared to $27.5 billion a year ago as high value products--petroleum, engineering goods, electronic goods, and gems & jewellery--rose in double digits on yearly basis.
Outbound shipments were up 48 per cent, followed by engineering goods at 37 per cent, electronic goods at 26.3 per cent and gems & jewellery at 19.7 per cent.
However, labour-intensive exports such as leather and its products, handicrafts expanded in single digits only.
Exports were also up 29.9 per cent compared to a pre-covid month of September, 2019.
Exporters body FIEO president A Sakhtivel flagged the issue of shortage of containers and freight hike. He demanded that a regulatory authority be set up to seek justification of freight hike and imposition of various charges by the shipping lines.
Imports, on the other hand, stood at $56.4 billion in September compared to $30.52 billion a year ago.
Increase in global rates led to imports of petroleum almost trebling to $17.4 billion in September over $5.8 billion in the same month of 2020. Imports of gold expanded by 750.6 per cent at $5.1 billion compared to $0.6 billion a year ago.
Coal shortage also led to their and related imports rising by 82.9 per cent to $2.2 billion compared to 1.2 billion a year ago.
Sakthivel emphasised the need to analyse imports.
Non-oil non-gold imports recorded a growth of 40.4 per cent in September compared to 37.3 per cent in August. These inbound shipments are taken as a barometer for industrial demand. This means that the index of industrial production (IIP) may continue to show an upbeat trend in September though high base may take away some of its impact. IIP grew by 11.9 per cent in August compared to 11.5 per cent in July.
Exports grew by 57.5 per cent at $197.9 in the first six months of the current financial year. The figure was almost half of the target for $400 billion for the entire year.
"With such positive trends, India will easily achieve the export target for the current financial year," said Prahalathan Iyer of Exim Bank.
On the other hand, imports rose by 81.7 per cent to $276.02 billion in the first half of the current financial year.
As such, the trade deficit stood at $78.12 billion during April-September of 2021-22.
Nayar said half of the trade deficit during this period was on account of petroleum products, with another one fourth pertaining to the deficit in imports of precious metals and stones and exports of gems & jewellery.
Services exports are estimated to rise by 19.5 per cent to $20.3 billion in September, while imports are estimated to grow by 23.3 per cent to $12.1 billion. This left balance in services trade to show a surplus of $8.2 billion which is an increase of 13.6 per cent on the yearly balance.
The overall trade deficit stood at $14.43 billion in September. This, together with some payments and receipts such as royalty, will constitute the current account deficit.
Nayar pegged the current account deficit at $25-28 billion for FY22.