Trade deficit scales record high of $31 billion in July, exports fall 12% over last month

Meanwhile, exports in July were "almost static" compared to last year, Subrahmanyam said at a briefing, coming in at $35.24 billion.

"The external world is no longer benign," the secretary added.

India's trade deficit has widened sharply in recent months because of high global commodity prices. This has put pressure on the rupee's exchange rate, which has hit multiple all-time lows against the US dollar over the last few weeks and crossed the 80-per-dollar mark for the first time on July 19.

While the Reserve Bank of India does not target an exchange rate level, it tries to limit the volatility by buying and selling its foreign exchange reserves. As a result of its exchange rate defence, India's foreign exchange reserves are down more than $70 billion from their peak of $642.45 billion, achieved on September 3, 2021.

July trade internals

Compared to June, July's merchandise exports were down a massive 12 percent, while the import bill was largely unchanged.

Despite the poor export performance in July, Subrahmanyam expressed confidence that merchandise exports would "comfortably" cross the $500-billion mark in FY23.

India's merchandise exports in FY22 totalled $429.2 billion. So far in FY23, exports have amounted to $156.41 billion.

"Restrictions on exports of wheat, iron and steel, and petroleum products have reined in the export growth," Subrahmanyam said on August 2, adding that $1 billion-2 billion worth of wheat has been retained domestically.

"Our domestic food security is important but this has reduced the export figures," he added.

Commenting further on the deterioration in exports, the commerce secretary said exports to Russia had shrunk by roughly half, while exports to Sri Lanka had nearly vanished. However, the RBI's decision to permit trade settlement in rupees is expected to increase exports to these countries.

Within exports, the only two bright spots were electronic goods and rice, although their sums were small. While electronic goods exports rose 46 percent year-on-year to $1.82 billion in July, rice exports were up 30 percent at $0.93 billion.

On the import front, the commerce secretary attributed the elevated nature of the import bill on the high prices of petroleum products and coal.

As per the commerce ministry's preliminary trade data, India imported petroleum products worth $21.13 billion in July, which was 70 percent higher on a year-on-year basis.

Coal imports rose by an even greater magnitude, posting an increase of 164 percent to $5.18 billion.

For April-July as a whole, the merchandise trade deficit now stands at $100.01 billion, sharply up from $42.07 billion recorded in the first four months of FY22.

India's merchandise trade deficit for FY22 as a whole was $189.5 billion. As such, the current rate could see the trade gap cross $300 billion in FY23.