IGI Logo

Imports touch 4-month high; trade deficit at $10.9bn in Jul ‘21

* Imports touch 4-month high; trade deficit at $10.9bn in Jul ’21: India’s imports grew 63% y/y to touch 4-month high of $46.4bn in Jul ’21 while exports grew at a much slower pace of 50% y/y to come in at $35.4bn. In sequential terms, growth in imports and exports stood at 11% and 9% respectively. As a result, trade deficit in Jul ’21 came in at $10.97bn. These growth numbers should be interpreted carefully as in Jul ’20 the economy was just coming out of stringent lockdowns restrictions. Imports and exports contracted 30% and 10% respectively in Jul ’20, resulting in very high growth rates in Jul ’21. In Jul ’20, trade deficit was just $4.8bn.

* Faster recovery in global economy benefiting exports: Looking beyond growth rates, average monthly trade numbers give good perspective. During Apr-Jul ’19 (i.e. pre-Covid period), average monthly imports and exports stood at $42.6bn and $26.7bn respectively. Comparatively, during Apr-Jul ’21, average monthly imports and exports stood at $43bn and $32.7bn respectively. This shows that while imports have reverted to pre-Covid levels, exports have exceeded pre-Covid monthly average by a wide margin due to faster recovery in the global economy compared to the domestic economy.

* Oil accounts for 66% of the deficit in Jul ’21 due to rising oil prices: Out of the total trade deficit of $10.9bn in Jul ’21, oil deficit (oil exports minus oil imports) came in at $7.2bn while non-oil deficit came in at $3.9bn. This is in line with past three months’ trend when oil deficit accounted for ~70% of total trade deficit. The main reason behind this is rising international oil prices. In Jul ’20, oil prices averaged $43/barrel while in Jul ’21 it shot up to $73/barrel. Given India’s position as large net oil importer, oil deficit has been accounting for two-third of total trade deficit in the past few months.

* Petroleum, engineering goods, jewellery exports drive total exports growth: In Jul ’21, three categories viz. petroleum, engineering goods and gems & jewellery exports contributed heavily to total exports growth. Petroleum and engineering goods exports have been recording good growth in the recent past due to rising oil prices and stimulus-driven pick-up in investment appetite globally. We expect these two categories to continue recording robust performance.

* Core exports grow 28%; labour-intensive exports grow 70%: Core exports (excluding petroleum and gems & jewellery) grew 28% y/y to $26bn. By stripping conspicuous consumption items and commodities, core exports reflect genuine demand for exports. Slower growth in core exports compared to headline exports shows that the underlying demand for India’s exports is weaker than it seems prima facie. Labour intensive exports (leather + gems & jewellery + textiles) grew 70% y/y to $7.2bn.

* Import growth driven by petroleum & jewellery; NONG imports grow just 45%: While total imports grew 63% y/y, non-oil non-gold imports grew just 45% y/y to $29.3bn. Petroleum and gold imports increased 97% and 135% respectively in Jul ’21 due to rising oil prices and higher demand for gold ahead of the wedding season. According to media reports, India imported 74 tonnes of gold in Jul ’21, up from 32 tonnes twelve months ago. Among other items, chemicals, ores and base metals imports recorded good performance. Capital goods imports (base metals + machinery + transport + project goods) recorded 57% y/y growth. However, given the low base, these numbers should be interpreted carefully.

To Read Complete Report & Disclaimer Click Here

For More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7

Above views are of the author and not of the website kindly read disclaimer