Trade deficit at record high in Apr-Aug of $125.2 bn

New Delhi: A marginal contraction in exports coupled with a continuing surge in the country's import bill through the month of August has renewed concerns over India's widening trade deficit and its impact on the broader economy. The rupee, which has already depreciated 7 per cent against the US dollar through this calendar year, will likely remain under pressure, adding to inflation and macroeconomic vulnerabilities, analysts and experts said.

On Saturday, the government released preliminary data that showed India's exports fell by 1.15 per cent year-on-year to $33 billion in August, while imports rose 36.8 per cent to $61.7 billion. For the first five months of this fiscal year (April-August), exports totalled $ 192.6 billion, while imports stood at $317.8 billion, leaving India with a record trade deficit of $125.2 billion, or nearly two and half times the level in the same period a year ago. In April-August last year, the trade deficit stood at $53.8 billion. If the current trends continued through the remaining part of the fiscal, India's trade deficit may touch $250 billion by March 2023, analysts said. This would compare to a trade deficit of $ 192.4 billion in the previous 2021-22 fiscal year. A widening trade gap has a direct impact on the current account deficit (CAD), which in turn influences the Indian rupee's resilience, investor sentiments and macroeconomic stability. India's CAD, the broadest measure of India's sell-and-buy balance with the rest of the world, is likely to touch $ 105 billion or 3 per cent of the GDP this fiscal.

The sharp deterioration in the export-import imbalance has come on the back of several developments that include the ongoing Russia-Ukraine war that caused a huge spike in global oil and commodity prices, supply chain bottlenecks due to the slow easing of Covid restrictions in China and pent-up demand for imports as the manufacturing sector recovered from the pandemic's shadow. Also, the July 1 introduction of an export duty on diesel and jet fuel (ATF) to take windfall profits that refiners were making has dented exports. Petroleum products are the second biggest forex earner behind engineering goods. The new duty, together with obligations for refiners to supply in the domestic market first, has led to a 10-11 per cent fall in petroleum product exports. The export fall comes as the oil import bill balloons. India spent about $99 billion on oil imports in April-August, more than the $62 billion spent in the entire 2020-21 (April 2020 to March 2021) fiscal and more than half of the $120.4 billion spending in the 2021-22 fiscal. While India is 85 per cent dependent on imports to meet its oil needs, a domestic coal crisis also forced the tapping of overseas supplies of the dry fuel for meeting the power demand during peak summer.

In recent months, the government has brought several measures to rein in imports. It has raised the import duty on gold to 12.5 per cent from 7.5 per cent, imposed restrictions on the import of several items, including electronic goods and set a target to increase the share of ethanol-blended fuel in domestic consumption from 10 per cent now to 20 per cent by 2025. While these measures have helped in some moderation in the growth of the import bill, as reflected in the August numbers, it is unlikely that the broader trend will change much. That is because most of the pressure points are on account of such imports, the demand for which is inelastic. These include crude oil and petroleum products, coal, chemicals and critical electronic components, such as semiconductor chips that account for more than 60 per cent of the import bill. Also, India is highly dependent on the import of vegetable oil. Besides oil, electronic goods imports have risen by almost 30 per cent to $32.6 billion in April-August, while coal imports nearly tripled to $26.8 billion and vegetable oil rose by a third to $91 billion. Gold imports are, however, down 13 per cent at $16 billion.