India Trade Balance Returns To A Deficit In July

India’s trade balance turned to a deficit in July after a rare surplus reported in June, as imports of gold and other commodities started to pick-up.

The trade deficit for July stood at $4.83 billion in July 2020, compared to a trade surplus of $0.79 billion in June.

Merchandise exports contracted by 10.21% year-on-year to $23.64 billion, after a contraction of 12.41% in June to $21.9 billion. Merchandise imports fell 28.41% in July to $28.47 billion, compared to a contraction of 47.59% last month to $21.1 billion.

The rare trade surplus seen in June vanished with some recovery in merchandise imports in July, which stamped out the further improvement in merchandise exports, said Aditi Nayar, principal economist at ICRA. This trend is likely to strengthen in the coming months, as demand for non-oil, non-gold imports starts to normalise, gold imports gather steam around the festive months, and crude oil demand and prices stabilise at a moderate level, she said.

However, non-oil-non-gold imports are unlikely to see a significant pickup as consumer confidence remains weak and exports are likely to perform better, said Sameer Narang, chief economist at Bank of Baroda. This, together with range-bound oil prices, imply that the trade deficit is likely to be far lower this year than last year, Narang said.

Key Exports

Non-petroleum and non-gems and jewellery exports rose by 3.4% in July to $20.37 billion, compared to a contraction of 3.51% in June.

• Gems & Jewellery exports fell by 49.6%
• Drugs & pharmaceutical exports rose by 19.5%
• Exports of organic chemicals reverted to pre-covid levels, contracting by just 0.05%
• Exports of engineering goods rose by 8.5%
• Exports of ready made garments fell by 22.1%
• Exports of rice rose by 48%

“Within exports, food products, medicines, ceramic products, and iron ore saw strong export growth, but key areas such as gems and jewellery, leather products, textiles remained weak,” said Rahul Bajoria, chief India economist at Barclays.

Key Imports

Non-oil imports contracted by 27.26% to $21.94 billion, compared to contraction of 44.69% last month. Non-oil and non-gold imports fell by 29.15% to $20.15 billion in July, compared to a contraction of 41.37% in June 2020.

• Oil imports were down 32% at $6.5 billion in July. In June, imports stood at $4.9 billion.
• Gold imports rose by 4.2% to $1.78 billion in July. In June, gold imports were down 77% at $608 million.
• Electronic goods imports were down 4% in July, but they rose sequentially from $3.17 billion in June to $4.8 billion in July.
• Organic and inorganic chemical imports fell by 12.2%
• Machinery, electrical & nonelectrical imports contracted by 33%

Sequentially, imports are rising as commodity demand has improved amid normalising demand conditions overall. While oil imports rose to over $6.5 billion amid falling inventories, and gold imports also rose by $1.8 billion, non-oil, non-gold imports continue to look weak, Bajoria said.