Is India's Trade Deficit at a 21-Month Low of $15.24 Billion in April, Reflecting a Sharp Decline in Imports?

India's trade deficit witnessed a significant reduction in April, reaching a 21-month low of $15.24 billion. This decline was primarily driven by a sharp decrease in import bills, attributed to cooling commodity prices and reduced demand for discretionary products like gems and jewellery. Meanwhile, merchandise exports experienced a decline of 12.7 per cent compared to the same month last year.

Import Decline and Weaker Merchandise Exports:

According to data released by the Ministry of Commerce and Industry, the value of merchandise imports in April 2023 fell to $49.90 billion, indicating a significant decline of 14.1 per cent compared to April 2022's $58.06 billion. India's merchandise exports fell to $34.66 billion in April from $39.70 billion recorded in the same month last year, recording a decline of 12.7 per cent. Director General of Foreign Trade Santosh Sarangi attributed the decline in exports to poor demand in the US and Europe. "For the next two-three months, I think the demand scenario does not look very optimistic," said Santosh Sarangi, adding India's exports may get better by September.

Offsetting Weakness with Services Exports:

India experienced growth in services exports for the second consecutive month to mitigate the impact of weaker merchandise exports. Services exports jumped to $30.36 billion in April 2023 from $24.05 billion recorded in the same month last year. India's overall exports (merchandise and services combined) in April 2023 is estimated to be $65.02 billion, showing a growth of 2 per cent over April 2022.

Factors Impacting Trade Deficit:

The substantial reduction in the trade deficit can be attributed to declining imports, primarily in the petroleum, crude, products, coal, and coke sectors. Santosh Sarangi said the decline in imports is because of the cooling down of commodity prices and reduced demand for products considered as discretionary spending such as gems and jewellery. He suggested diversifying into products which have higher export demand such as electronic goods, oil meals, oil seeds, and agricultural goods.

Several sectors experienced negative growth in exports, including petroleum products, gems and jewellery, engineering goods, chemicals, and ready-made garments. Arun Kumar Garodia, Chairman of the Engineering Export Promotion Council (EEPC) of India, said, as quoted by the Deccan Herald, ”The second half of FY23 was quite challenging considering weak demand from key markets. We are still not out of the woods considering the ongoing war in Europe, slowdown in major advanced economies, high interest and geopolitical tensions." The Ministry of Commerce and Industry noted that textiles, plastic, and linoleum exports continued to decline in April 2023 due to subdued demand resulting from recessionary effects in major economies.

Trade Deficit and Future Outlook:

While the decline in imports and merchandise exports in April indicates persisting challenges, experts anticipate a gradual improvement in the trade landscape. India's trade deficit stood at $15.24 billion, while overall imports were valued at $49.90 billion in April 2023, reflecting a 7.92 per cent decrease year-on-year. The sustained decline in imports, coupled with a focus on diversifying export products and prioritizing sectors with higher demand, is expected to contribute to an enhanced trade performance for India.

Chief economist of Icra, Aditi Nayar said, "The decline in trade deficit was driven by non-oil items, with the fall in crude prices partly absorbed by higher volumes. The narrowing trade deficit indicates a positive development for India's current account balance and external trade position."