India’s trade basket plummeted in May though at a slower pace than the preceding month as countries sealed their borders to arrest the spread of the coronavirus pandemic and supply chains broke down due to mobility restrictions.
Merchandise exports plunged 36.5% and imports fell 51.1% in May resulting in a trade deficit of just $3.2 billion, data released by the commerce ministry on Monday showed.
In April, merchandise exports and imports had declined by 60.3% and 58.7% respectively. According to calculations by UNCTAD, among major developing economies India’s exports fell the most in April only behind a 61% dip in overseas shipments by South Africa.
However, trade minister Piyush Goyal on Monday tweeted that exports in the first week of June at $4.94 billion have bounced back to almost the same level ($5.03 billion) during the same period a year ago.
Federation of Indian Export Organisations president Sharad Kumar Saraf said that though the decline in exports in May have been towards the higher side, there is drastic arrest in fall of exports compared to April. “This has been because of the partial start of businesses across the country and business orders from the markets like the US and European Union. Revival still seems a very slow process as the global business sentiments are at its lowest, impacting the supply chain and bringing slump or recessionary conditions in the economies across the world, he added.
The Organisation for Economic Co-operation and Development (OECD) last week said the world economy may contract by 6% or 7.6% in 2020, depending on whether it experiences a single-hit or a double-hit scenario, respectively. It expects the India’s economy to contract by as much as 7.3% in FY21 if a second wave of coronavirus sweeps the country, requiring reinforcement of containment and social distancing measures.
Engineering Export Promotion Council of India chairman Ravi Sehgal said as the major economies try hard to re-open, the demand would be restricted towards the most essential items. “Even within the engineering exports, we need to rework on our strategy. Sub-sectors like medical devices would be doing well while core infrastructure industries may take time to recover,” he added.
Among major items, only export of rice, spices, iron ore, drugs and pharmaceuticals recorded positive growth in May while among major imports, iron pyrites, project goods registered growth during the same month.
The World Trade Organization (WTO) has projected global merchandise trade to drop between 13% and 32% in 2020 due to the pandemic. “The wide range of possibilities for the predicted decline is explained by the unprecedented nature of this health crisis and the uncertainty around its precise economic impact. But World Trade Organization economists believe that the decline will likely exceed the trade slump brought on by the global financial crisis of 2008‑09,” it said in April.
Aditi Nayar, principal economist at ICRA Ratings said based on the expectation of a gradual normalisation in trade levels in the coming months, a stabilisation in crude oil prices at a moderate level, a revival in demand for gold closer to the festive season and the continued adverse impact of economic uncertainty on remittances, she expects India to report a current account surplus of $12-15 billion in FY21. “However, if the domestic demand recovers faster than global demand, the size of India’s current account surplus may be limited below $10 billion,” she added.