Trade recovers after months of weak import demand; Indian exports of these items rise

India’s trade balance has started to normalize with a pick up in both imports and exports after sustaining months of lull due to the coronavirus pandemic. With this, India is expected to go back to mangeable trade deficit from a short period of trade surplus. “The ongoing normalisation in trade deficit was accompanied by normalcy coming back into both exports and import demand,” a Barclays report said on Wednesday. The trade deficit in August came at negative $6.8 billion in August as opposed to minus $4.8 billion in July.

In August, India’s exports fell by 12.7% on-year even while imports rose sequentially as there was a jump in commodity demand due to low inventory. Indian imports for oil, gold rose with oil imports rising to over $6.4 billion amid falling inventories, while gold imports also rose by $3.7 billion, marking strongest demand in 15 months. However, non-oil and non-gold imports continue to look mute and fell 19.8% on-year.

On the other hand, food products, iron ore and pharmaceutical products saw strong export growth even as exports slumped in key areas such as gems and jewellery, petroleum products, and capital goods. “Given the overall decline in global demand, the 12.7% on-year decline in merchandise exports is not surprising and reflects the challenges that Indian exporters will continue to face in stepping up its shipment levels,” Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research said in a note, adding that a sustained growth in exports of agricultural and pharmaceutical goods is encouraging. Further, even while there is a collapse of tourism industry, India’s service trade surplus remains elevated.

Going forward, while India is likely to post a goods trade deficit in the coming months, it is expected to remain low and manageable, the Barclays report said. Suman Chowdhury of Acuite Ratings and Research also said that the merchandise trade deficit is unlikely to witness any significant increase in the coming few months and will lead to a current account surplus in FY21.