Trade Deficit Widens In March As Imports Spike

India’s trade deficit widened in March amid rising imports, including higher inbound shipments of gold.

Trade deficit for March stood at $13.93 billion compared to a deficit of $12.61 billion in February according to data published by the Ministry of Commerce and Industry on April 15.

• Merchandise exports rose 60.29% year-on-year in March to $34.45 billion. It stood at $27.93 billion in February.
• Merchandise imports rose 53.74% over last year to $48.38 billion. It stood at $40.54 billion last month.
• Non-oil, non-gold imports rose by 46.66% to $29.62 billion, compared to $26.27 billion a month ago.

The sharp expansion in merchandise exports and imports in March 2021 reflects a combination of factors such as a muted base, rising commodity prices reflecting post-vaccine optimism, as well as a surge in volumes at the end of the year, according to Aditi Nayar, principal economist at ICRA.

Key Export Items

• Petroleum products rose 35.52%.
• Organic & inorganic chemicals up 46.5%.
• Gems & jewellery jumped 78.93%.
• Ready made garments increased 27.51%.
• Drugs and pharmaceuticals up 48.49%.
• Engineering goods rose 71.3%.
• Electronic goods increased 91.98%.

Key Import Items

Gold saw the sharpest surge in imports, rising 591.73% year-on-year to 8.49 billion tonnes in March.

• Coal, coke and briquettes rose 7.84%.
• Petroleum, crude and and products up 2.23%.
• Machinery, electrical & non-electrical increased 60.15%.
• Electronic goods rose 34.05%.
• Pearls, precious and semi precious stones up 81.43%
• Organic and inorganic chemicals rose 55.7%.

On a cumulative basis, merchandise exports contracted by 6.66% between April 2020-March 2021, while merchandise imports contracted by 16.53%.

With the rise in commodity prices and surge in gold imports, we expect the current account deficit to widen to $5-7 billion in Q4 FY21, limiting the size of the annual current account surplus to $26-28 billion in FY21 as a whole, Nayar said.

If localised restrictions proliferate, both exports and imports may be adversely impacted in the ongoing quarter in sequential terms. Given the surge in Covid-19 infections, we expect some demand to get shifted from Q1 FY22 to the later part of the year, which may temporarily dampen imports, she said.