India’s merchandise exports contract in February, trade deficit at $12.9 billion

After two successive months of growth, India’s merchandise exports contracted in February amid rising concerns over a potential second wave of the coronavirus pandemic and delay in implementing a tax reimbursement scheme for exporters.

Preliminary data released by the commerce ministry on Tuesday showed exports fell 0.25% year-on-year last month, while imports rose 7% leading to a trade deficit of $12.9 billion.

During April-February, merchandise exports contracted 12.32% while merchandise imports fell 23.1%, resulting in a $151.4 billion trade deficit.

In February, exports of petroleum products (-27%), gems and jewellery (-11%) and engineering goods (-2.6%) fell, while shipments of pharma products rose around 15%. Among major import items, petroleum (-16.6), transport equipment (-23%) fell while imports of gold (124%), electronic goods (38%), chemicals (37.6%) shot up significantly.

India’s merchandise trade had been under pressure even before the pandemic hit the economy and external demand. Exports were negative in 16 of 20 months starting June 2019. Since March 2020, both exports and imports started declining in high double digits, leading to a trade surplus in June for the first time in 18 years.

Aditi Nayar, principal economist at ICRA Ltd said after the FY22 Budget reduced customs duty on gold, imports surged to the highest level in February since November 2014. “With gold imports remaining elevated for the last three months, we now expect the total value of shipments in FY21 may modestly exceed the level of $28.2 billion seen in FY20. We expect the merchandise trade deficit to print at $12.5-13.5 billion in March 2021, resulting in a current account deficit of under $5 billion in that quarter,” she added.

The Indian economy recovered in the December quarter to grow at 0.4% after two successive quarters of historic contraction induced by the coronavirus pandemic, signalling that Asia’s third largest economy may be on a path of slow but sustained recovery. For FY21, however, the government’s statistics office estimates deeper contraction of 8% compared with an earlier projection of a 7.7% decline.