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India’s exports remain stable YoY in Dec’20

* Data from the Ministry of Commerce reveals that exports from India rose 0.1% YoY in Dec’20 as against a decline of 8.7% YoY in Nov’20 and a contraction of 2.7% in Dec’19. Imports into the country grew 7.6% YoY last month as compared with a fall of 13.3%/6.5% YoY in Nov’20/Dec’19 (Exhibit 1). As a result of a sharp pick-up in imports, the foreign trade deficit widened to USD15.4b in Dec’20 v/s USD9.9b in Nov’20 but higher that the USD12.5b in Dec’19 (Exhibit 2).

* On a year-to-date basis, while exports have declined 15.6% YoY to USD201b up to Dec’20, imports fell at a rather fast pace (28.9% YoY) to USD259.1b. The trade deficit in 9MFY21 stood at USD58.1b as against a deficit of USD125.9b during Apr-Dec’19 (Exhibits 3 and 4).

* While petroleum exports contracted at the slowest pace in three months by 35.6% YoY to USD2.3b, gems and jewelry exports grew at the highest pace of 6.7% YoY in nearly two years. Non-oil exports have actually risen much faster at a three-month high of 5.6% YoY in Dec’20, and exports, excluding gems and jewelry, declined 50bp YoY.

* The major non-oil non-gems and jewelry exported items that posted a growth in Dec’20 were electronic goods (16.5% YoY); cotton yarn/fabs./made-ups, handloom products, etc. (10.6% YoY); engineering goods (0.3% YoY); organic and inorganic chemicals (10.8% YoY); drugs and pharmaceuticals (17.5% YoY); among others.

* Major reason for a pick-up in total imports in Dec’20 was a 14.3% YoY growth in non-oil imports (first growth in 19 months), while oil imports too declined at the slowest pace in 10 months. Gold imports grew sharply by 81.8% YoY to USD4.5b, without which total imports would have grown only 2.6% YoY in Dec’20.

* Electronic goods (20.9% YoY); machine tools (13.5% YoY); non-ferrous metals (28.1% YoY); iron and steel (12.7% YoY); machinery, electrical and non-electrical (0.6% YoY); pearls, precious, and semi-precious stones (7.8% YoY); among others, were the other imported items to report a growth in Dec’20.

* The recent normalization in economic activity and rise in global oil prices has led to a growth in imports in Dec’20. While even a 15bp growth in exports is encouraging, we need to be watchful of the trend going forward as fresh lockdowns globally pose a risk. We believe that India’s current account surplus could reduce to 0.3% of GDP in 3QFY21. We expect the current account to remain in surplus in all the four quarters and record a surplus of ~1.3% of GDP in FY21E.

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