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Trade Talks: India’s real exports decline ~19% YoY in October 22

* In continuation with our detailed analysis of India’s trade to understand the impact of inflation on nominal trade data, we found that India’s real exports continued to contract but real imports grew in Oct’22. This implies that global demand (or domestic production) is extremely weak. However, domestic demand (excluding inflation) still stands relatively strong, especially after the contraction witnessed in Sep’22.

* Nominal exports declined for the first time in 20 months by 16.7% YoY in Oct’22, while imports grew 5.7% YoY (albeit slower than +8.7% YoY in Sep’22). Hence, India’s foreign trade deficit stood at USD26.9b during the month, slightly higher than Sep’22 but sharply above USD17.9b in Oct’21.

* Based on 28 major commodities, each accounting for >90% of exports and imports, our calculations suggest that India’s real exports contracted 19.3% YoY in Oct’22 – the fastest decline in 29 months but real imports grew 1.4% YoY after contracting 8.6% YoY in Sep’22. Notably, the inflation impact is much lower in Oct’22 than it was in the previous few months as the prices of most commodities exported and imported have either contracted/contracted faster/grown slower in Oct’22.

* Out of the 10 items – that hold ~82% share in total exports, five (~59% share) exhibited a decline in real exports in 7MFY23 vis-a-vis 7MFY22. These are – engineering goods, petroleum products, textiles, chemicals and plastic items. Three items within imports – petroleum products, gold and coke & coal products – saw declines in real imports during 7MFY23. Consequently, real exports declined 3.3% YoY in 7MFY23 but excluding petroleum products, it contracted only 1.3% YoY. Similarly, while real imports grew only 6.3% YoY in 7MFY23, excluding oil products it grew faster by 10.5% YoY and to this if we also exclude gold, growth was even faster at 14.6% YoY.

* Overall, three key takeaways from Oct’22 trade data are: a) commodity inflation continues to subside, implying lesser impact of prices on nominal trade numbers, b) despite a 1.8% MoM depreciation in INR (v/s the USD) in Oct’22, nominal exports still declined sharply, indicating i) extremely poor global demand or ii) higher global demand from other economies where the local currencies have depreciated more and c) steady deceleration in international petroleum prices means well for India’s external trade as 26% of our import basket comprises only petroleum products .

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