Amid Demand Slump, India Records Rare Trade Surplus In June

India recorded a trade surplus in June for the first time in over a decade as exports rebounded from pandemic-driven disruptions quicker than imports.

The trade surplus for June stood at $0.79 billion as compared to a deficit of $3.15 billion in May 2020. In June 2019, the trade deficit stood at $15.28 billion.

• Merchandise exports fell 12.41% year-on-year in June to $21.9 billion. The fall was steeper at 36.47% in May.
• Merchandise imports fell 47.59% to $21.1 billion in June, compared to a contraction of 51.05% last month.
• Non-oil, non-gold imports fell 41.37% to $15.57 billion in June 2020. The decline steepened compared to a 33.47% drop in May.

The relative improvement in exports is encouraging for India’s growth prospects, but the persistent weakness in imports is a reflection of selective sectoral lockdowns, lower commodity prices and weak underlying demand, said Rahul Bajoria, chief India economist at Barclays. A goods trade surplus is unlikely to be sustained, as India's domestic demand is inching back towards normalcy, which should see import demand reviving with it, Bajoria said.

Key Export Items

• Iron ore exports rose 63.11%
• Exports of oil seeds rose 50.48%
• Organic & inorganic chemicals rose 19.06%
• Gems & jewellery contracted by 50.06%
• Leather & leather products fell by 40.47%
• Ready made garments fell 34.84%

Key Import Items

• Gold imports contracted by 77.4%
• Coal, coke and briquettes contracted by 55.7%
• Petroleum, crude and and products contracted by 55.29%
• Machinery, electrical & non-electrical fell 42.02%
• Electronic goods contracted fell 34.05%

On a cumulative basis, merchandise exports contracted by 36.7% in the April-June quarter, while merchandise imports contracted by 52.43%, taking India’s trade deficit to $9.12 billion.

Given the delayed recovery in imports, ICRA expect the merchandise trade deficit to shrink to around $10-12 billion in Q1 FY21 on a Balance of Payments basis, said Aditi Nayar, principal economist at the rating agency. However, the ongoing economic uncertainty would severely impact inward remittances. Balancing these contrasting trends, we expect a current account surplus of around $14-16 billion in Q1 FY21, Nayar said.