Trucks sit parked at the Haldia Dock Complex (HDC), part of the Kolkata Port Trust (KoPT), in Haldia, West Bengal, India. (Photographer: Sanjit Das/Bloomberg)

India’s Trade Gap Narrows Slightly As Exports Rebound In November

India’s trade gap in November narrowed marginally from a near three-year high last month as export growth bounced back and import of certain commodities saw seasonal slowdown.

The trade deficit, the gap between exports and imports, increased 3.1 percent over last year to $13.83 billion, according to data from the commerce ministry. While the deficit was higher than the same month last year, it has narrowed from $14 billion in October.

The trade data reflects “a solid export rebound” but with imports still elevated, the deficit narrowed only marginally, said Japanese brokerage Nomura in a report.

Exports bounced back after declining for the first time in 15 months in October. The value of outbound shipments grew 31 percent over last November to $26.2 billion, particularly from a sharp rise in export of engineering and petroleum products.

The trend is similar to that seen in other Asian economies like Korea, China and Taiwan which too witnessed strong export growth, Morgan Stanley Research had said in a prior note.

Exports of engineering goods, the largest contributor to India’s outbound shipments, saw a 43.8 percent rise over last year to $7.1 billion after a marked slowdown in October. Gems and jewellery exports, the second largest contributor, climbed 32.7 percent to $3.3 billion after contracting last month.

Indian exports have been on a downtrend since 2014-15, adversely impacted by a global slowdown, a sharp fall in commodity prices and currency fluctuations. It started recovering in July 2016 and had been on the rise since, but growth was offset by India’s large import bill led by higher import of gold and oil.

Export volume growth in November was at 23.1 percent, recovering from a 4 percent decline in October, according to Nomura. "Sector-wise, the pick-up in exports was led by the agriculture products, chemicals, engineering goods and gems & jewellery segments, although growth in labour-intensive exports remains weak, possibly because of working capital issues due to delayed goods and services tax refunds," the report said.

India’s Trade Gap Narrows Slightly As Exports Rebound In November

Imports in November rose 19.6 percent over last year to $40 billion. The pace of import growth was faster than that seen in October due to a sharp rise in crude oil prices and the value of inbound shipments of precious stones and pearls.

Oil shipments, the largest burden on India's import bill, went up 39 percent over last year to $9.5 billion. Global crude oil prices have rebounded from the year's low in June to reach nearly $65 per barrel for the first time since 2015, after exporting countries triggered production cuts to drain the global oversupply. The benchmark Brent crude prices were 34 percent higher than November last year.

Since India imports nearly 80 percent of its oil needs, fluctuation in global prices have a cascading impact on the trade deficit. “Even an average annual $1 increase in oil price can lead to an increase in oil imports by $1.56 billion, annually,” wrote Soumya Kanti Ghosh, chief economic adviser at State Bank of India, in an earlier note.

India’s Trade Gap Narrows Slightly As Exports Rebound In November

Gold imports fell for a third straight month to $3.2 billion, 26 percent lower than in last November as demand tapered off. Demand for gold was expected to slow down under India’s new sales tax regime, according to the World Gold Council.

A higher import bill increases India’s risks of a fiscal slippage. The country had exhausted 96.1 percent of its budgeted target for fiscal 2018 by October. It is trying to bring down its fiscal deficit to 3 percent of the GDP by 2019.

Export Highlights

  • Export of petroleum products went up 47.7 percent to $3.6 billion.
  • Readymade garment exports fell 10 percent to $1.03 billion.
  • Export of organic and inorganic chemicals also saw a 54.2 percent rise to $1.6 billion.
  • Pharmaceutical exports increased 13.4 percent to $1.6 billion.
  • Export of plastic and linoleum went up 40.9 percent to $0.6 billion.
  • Leather exports remained largely flat at $0.4 billion
  • Electronic goods exports increased 26 percent to $0.58 billion.

Import Highlights

  • Pearls, precious and semi-precious stone imports increased 86 percent to $2.9 billion.
  • Coal and coke imports increased 52 percent to $1.9 billion.
  • Organic and inorganic chemicals went up 49 percent over last year to $1.8 billion.
  • Iron and steel imports increased 36 percent to $1.2 billion.
  • Ores and mineral imports increased 50 percent to $0.8 billion.