On an unfavorable basis, commodity exports grew 23.5% in June from a year earlier, but a massive 57.6% jump in imports driven by a rise in global commodity prices pushed the trade deficit to a new monthly record of $26.2 billion.
With this, the trade deficit widened to a record $70.8 billion in the June quarter, up from $31.4 billion in the same quarter last fiscal, according to provisional data released by the commerce ministry on Thursday.
According to some analysts, this is likely to push the country’s current account deficit to over 3% of GDP for the first quarter of FY13, as against 1.5% in the previous quarter.
Given the fears of a slowdown in top markets (USA and EU), which contributed greatly to India’s stellar export performance in FY12, external demand for Indian goods may falter in the coming months. Despite some improvement in recent weeks, the global supply chain remains entangled.
Of course, with the softening of commodity prices, some pressure on the CAD front is expected to ease in the second half of the current fiscal. Moreover, a dramatic increase in imports for the second straight month (even without oil and gems and jewellery, imports jumped to 38.3% in June) indicating a recovery in domestic demand that remained subdued for months in the wake of the Covid outbreak.
Exports rose to $40.1 billion in June, a record third month of any fiscal year, and growth is slightly higher than May’s 20.6%. Core exports grew 8.7% in June, up from 8.6% in the previous month, but down from 19.9% in April.
But imports rose to $66.3 billion from $42.1 billion a year ago, driven by a 99% jump in purchases of oil and petroleum products, 261% in coal and 183% in gold.
The jump in prices substantially pushed up the import bill of petroleum and coal, while the bulk of gold imports were partly driven by jewelers’ bid to build inventory to meet some suppressed demand. This is partly because last year many weddings were postponed to 2022 due to the pandemic, according to the finance ministry’s June economic report. Fitch Ratings has already warned of doubling India’s CAD to about 3.1% of GDP in FY13. Of course, senior government officials have acknowledged concerns about CAD’s funding.
Among the high-value segments, export growth in June was led by petroleum products (119%), followed by electronics (61%) and textiles (50%).
Icra Chief Economist Aditi Nair said the widened trade deficit for June poses some upside risk to the CAD for Q1 FY23, adding, “The correction in commodity prices softened the outlook for the current quarter. Even though there could be a slowdown in the midst of a slowdown in export growth. A weak outlook for the global economy. That forecast a slight decline in our FY23 CAD estimate of $105 billion, or 3% of GDP.
Apex exporters body FIEO president A Sakthivel said the increase in imports is a matter of concern. However, good export growth “reflects the strength of the export sector amid challenging ongoing geopolitical and rising global uncertainties”.