Goods trade deficit hits a 10-month high

Goods trade deficit hits a 10-month high

Goods trade deficit hits a 10-month high

Context 

In August, India’s foreign trade hit a new low, with goods exports falling for the seventh consecutive month, services exports falling for the first time in well over a year, and the goods trade deficit reaching a 10-month high.

What are Merchandise imports?

  • Merchandise imports are items that have entered a country for consumption. They comprise data on the value, amount, mode of transport, clearing province, and country of origin.
  • India’s merchandise imports are expected to be $710 billion in the fiscal year ending March 2023, up from $613 billion in FY2022. This is an increase of more than 15.8% over the previous year.
  • India’s Main Imports are:
    1. Mineral fuels, oils, waxes, and bituminous compounds account for 27% of total imports in India.
    2. Pearls, precious and semi-precious stones, and jewellery (14%)
    3. Electrical machinery and equipment (ten per cent)
    4. Nuclear reactors, boilers, machines, and mechanical appliances account for 8% of the total.
  • India’s total exports (merchandise and services combined) are expected to reach $66.14 billion in March 2023. This represents a 7.53% decrease from March 2022. Overall imports are expected to be $72.18 billion in March 2023, a 7.98% decrease from March 2022.

Exports of goods are declining:

  • For seven months in a row, India’s goods exports have been declining.
  • The fall in goods exports eased to 6.86% in August, compared to the double-digit reductions seen in prior months.
  • August’s total value of goods exports was $34.5 billion.

Exports of Services:

  • Services exports in India fell 0.4% in August, after expanding at a rate of 26.7% in fiscal year 2022-23.
  • The anticipated value of August services exports was $26.39 billion.
  • This drop generated fears about a growing current account deficit in the current quarter.

Goods Trade Deficit: 

  • While the merchandise import bill for August was 5.23% lower than the previous year, it was 10.85% higher than the import bill for July.
  • This rise in imports led to a $24.16 billion goods trade deficit in August.
  • This deficit was 2.8% lower than in August 2022, but nearly 17% greater than in July.

Concerns over the current account deficit: 

  • Aditi Nayar, ICRA’s chief economist and head of research, expressed alarm that the strong increase in imports in August had extended the trade gap to a 10-month high.
  • She expressed concern that India’s current account deficit will worsen in the current quarter (Q2), compared to the $10-12 billion deficit predicted in the prior quarter (Q1).

Oil Price Impact: 

  • Falling petroleum prices have been blamed for a substantial percentage of India’s recent export drop.
  • Despite a 6% increase in petroleum product export volumes from April to July, prices were 27% lower than the previous year.
  • This dip in pricing contributed significantly to the total loss in the value of exports.

Global Trade Forecast:

  • The section mentions the World Commerce Organization’s (WTO) forecasts of 2.4% growth in global commerce in 2024, up from 1.7% in 2023.
  • This shows a good global trade outlook, which could assist India’s exports if international trade circumstances improve.

Conclusion 

In summary, the passage provides a comprehensive overview of India’s foreign trade situation in August, including a decline in goods and services exports, the impact of falling oil prices, concerns about the current account deficit, and cautious optimism about the future as global trade conditions improve