India stood at the overall trade deficit of USD 64.4 billion for the October-December quarter – a substantially higher mark as compared to USD 44.1 billion in July-September quarter. But all is not gloomy as EXIM activity hit an all time high in December with an impressive elevation from November. Merchandise exports increased by 38.1% (Y-O-Y) and 12% (over November) and the merchandise exports increased by 37% (Y-O-Y) and 24.1% (over November). These statistics – though keeping the trade deficit at elevated – decreased the gap between exports and imports to USD 21.91 billion in December.
We believe this sets the stage for the current account deficit to widen to 3.4% of GDP in October-December quarter.”Nomura
For a full financial year, Nomura estimates the trade deficits to hover around 1.6% of GDP, which is a good news since a current account deficit within 2% of GDP is generally seen as sustainable.
If experts are to be believed, the aforesaid numbers of EXIM activity have been a result of high commodity prices and a strong demand, which in turn, kept the trade activity up-heaved. But they also warn against the high deficit percentage and the risks of sticky deficits, which should not be taken lightly.
As far as year to date FY22 is concerned, trade deficits are higher at USD 140 billion, which is much higher than the pre-pandemic numbers standing at USD 126 billion for the same period in FY20. The ballooning domestic demand and still critical condition of global supply chain bottlenecks could bring the trade deficit somewhere around USD 18 billion, all assuming oil trade at the current level. Non-petroleum exports were at USD 31.67 billion – inflated by 27.31% – and non-petroleum imports rose to USD 43.37 billion – registering an increase of 30.2% – in December 2021 (Y-O-Y).
Key Export Items (December)
- Engineering goods – USD 9.7 billion (37.3% Y-O-Y increase)
- Petroleum product – USD 5.6 billion (140.2% Y-O-Y increase)
- Gems and jewellery – USD 3 billion (15.8% Y-O-Y increase)
- Drugs and pharmaceuticals – USD 2.3 billion (3.8% Y-O-Y increase)
Key Import Items (December)
- Petroleum, crude and product – USD 15.9 billion (65.2% Y-O-Y increase)
- Electronic goods – USD 6.5 billion (29.7% Y-O-Y increase)
- Gold – USD 4.7 billion (4.6% Y-O-Y increase)
- Machinery, electrical and nonelectrical – USD 3.9 billion (23.2% Y-O-Y increase)
- Organic and inorganic chemicals – USD 3.2 billion (71.5% Y-O-Y increase)
- Coal, Coke and Briquettes – USD 2.8 billion (72.1% Y-O-Y increase)