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India’s trade deficit widens to a seven-month high in exports, up by nine months in May | Economics and Policy News

Besides petroleum products, the goods driving import growth include transportation equipment (31.88 percent), silver (408 percent), vegetable oil (27.5 percent) and pulses (181 percent).

trade deficit, revenue deficit, fiscal policy

Shreya Nandi New Delhi

India’s trade deficit widened to a seven-month high of $23.78 billion in May, due to growing imports mainly of petroleum, vegetable oils and transportation equipment.

The data released by the Commerce Department on Friday showed that merchandise exports grew 9.13 percent to $38.13 billion, while imports rose 7.7 percent to $61.91 billion.

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Petroleum products, which constitute nearly 32 percent of India’s imports, grew 28 percent to $19.95 billion.

Union Commerce Minister Sunil Barthwal said the trade deficit is not “bad” if it is accompanied by steady inflows of foreign direct investment and foreign exchange.

“If your economy grows faster than the world (economy), there will be greater demand for imports and higher pressure on domestic production. So you will have less exportable surpluses because most imported items end up on the domestic market. It will depend on two factors: import substitution and the pace of economic growth, he added.

Besides petroleum products, the goods driving import growth include transportation equipment (31.88 percent), silver (408 percent), vegetable oils (27.5 percent) and pulses (181 percent).

On the export front, Barthwal expected the positive growth trend to continue.

“It is a good omen after the new government came in that our (merchandise) exports have grown… by more than $3 billion (in terms of value) in one month. This reflects the fact that inflation has declined in the major advanced economies. With inflationary pressures easing in developed countries, there will be higher purchasing power… this will increase demand for (their) imports,” Barthwal said.

Export growth was driven by demand for petroleum products (15.75 percent), engineering goods (7.39 percent), electronic goods (22.97 percent) and textiles (9.84 percent).

Exports excluding petroleum, gemstones and jewelry, indicative of a clearer parameter of the health of outbound shipments, saw modest growth of 8.8 percent year-on-year to $28.6 billion.

Aditi Nayar, chief economist at ICRA, said the trade balance deficit widened due to a rise in net oil imports.

“In consecutive terms, 71 percent of the increase in the trade balance deficit in May 2024 compared to April 2024 was driven by the net oil balance, with a sharp increase in volumes while prices cooled somewhat. With the trade balance deficit increasing by $6 billion between April and May 2024 compared to the months a year earlier, we expect the current account deficit to increase from 1.1 percent of GDP to 1.5 percent this quarter percent of gross domestic product (GDP). in the first quarter of 2024,” Nayar said.

Services exports grew 11.7 percent to $30.16 billion in May, while services imports rose 8.8 percent to $17.28 billion, resulting in a surplus of $12.88 billion.

However, the services trade data for May is an “estimate”, which will be revised based on the Reserve Bank of India’s subsequent release.

Federation of Indian Export Organizations President Ashwani Kumar expects exports to post better growth rates with improved demand in the European Union, United Kingdom (UK), West Asia and the United States, which has boosted order bookings with more than 10 per year. cent and has come as a sign of recovery for labour-intensive export sectors.

“Addressing the West Asian geopolitical situation and the challenges of the Red Sea crisis by ensuring the availability of marine insurance and a rational increase in freight costs is essential. The sector also needs easy and low cost of credit, marketing support and early conclusion of a number of free trade agreements with Britain, Peru and Oman,” he said.