Outbound shipments from India contracted for a second straight month in November after posting positive growth for just one month in September as the second wave of the coronavirus pandemic hit consumer demand in Europe’s major markets. India.
Exports fell 8.7% while imports shrank 13.3%, resulting in a 10-month trade deficit of $ 9.9 billion, according to revised trade data released by the Commerce Department.
China’s exports, by contrast, increased 21.1% in November, the fastest growth since February 2018, while imports grew 4.5%, leading to a record trade surplus of $ 75.4 billion.
The main Indian export items that held back growth include petroleum products (-59.7%), engineering goods (-8.1%), chemicals (-8.1%), ready-to-wear garments (-1.2%) %) while pharmaceuticals (11.1%), gems and jewelry (4.1%), electronic goods (1%) recorded positive growth. The elements that drove imports and the trade deficit include non-ferrous metals (9.1%), chemicals (36.1%), electronic goods (12.3%), fertilizers (29.3%) and gold ( 2.7%).
Aditi Nayar, chief economist at ICRA Ltd, said the slowdown in non-oil export growth was driven by renewed restrictions in trading partners that overcame optimism regarding early availability of Covid-19 vaccines. “This trend could continue into the winter months before an uptrend takes hold in the fourth quarter of FY21. The ICRA expects the magnitude of the commodity trade deficit to nearly double in Q3 FY21 versus Q2 FY21, with imports picking up thanks to improved economic activity, higher commodity prices and a resumption of demand for gold during the holidays and wedding season, “he added.
Nayar added that he expects the current account surplus to decrease substantially in Q3 FY2021 and Q4 FY2021 from its level of $ 19.8 billion in Q2 as the domestic recovery strengthens. “Overall, the ICRA expects India’s current account balance to post a sizable surplus of $ 35-40 billion or about 1.5% of GDP in FY21, as opposed to the $ 25 billion deficit or 0.9% of GDP in FY20, “he added.
India’s commodity trade weakened even before the covid-19 pandemic hit the economy and external demand. In 15 of the last 17 months since June 2019, the country’s exports have been negative. However, since March of this year, both exports and imports have started to decline at double-high figures, even temporarily leading to a trade surplus in June for the first time in 18 years.
Data collected by the World Trade Organization (WTO) showed that global trade in goods decreased by 21% in the June quarter. The WTO now expects the volume of world trade in goods to decrease by 9.2% in 2020, followed by an increase of 7.2% in 2021. In April, the trade body predicted that world trade in goods will fall from 13% to 32% in 2020 due to the pandemic.
The pace of contraction of the Indian economy slowed in the September quarter to 7.5% from an all-time high of 23.9% in the June quarter. Since then, many economic agencies have revised their growth forecasts for India upwards. The Asian Development Bank has predicted that the Indian economy will contract at a slower pace of 8% than its previous estimate of 9% in FY21 in the wake of a faster recovery in Asia’s third largest economy. The Reserve Bank of India (RBI) earlier this month predicted that the Indian economy will contract 7.5% in FY21, a less than 9.5% contraction expected just two months ago, on the back of a series leading indicators, suggesting a sustained economic recovery.