Trade deficit shoots up 62% YoY to $25.6 billion in June

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India's merchandise trade deficit rose to $25.6 billion in June 2022, 62 percent higher than June 2021 as a continuing global commodity supercycle kept the prices of key energy and metal imports high.

Data released by the Commerce and Industry Ministry on Monday showed that while exports in June rose by 16.8 percent to $37.9 billion, imports shot up by 51 percent to $63.5 billion. The resultant $25.6 billion worth of trade deficit - the difference between total exports and imports - has given the Commerce Department a new headache, an official said.

The monthly trade deficit has been rising for the past few months. It had risen from $20.4 billion in April to $23.3 billion in May earlier. "We expect the merchandise trade deficit to remain in excess of US$20 billion in the remainder of 2022. However, robust services surpluses will partly absorb the shock. We expect the current account deficit to print in the range of US$100-105 billion in FY2023," Aditi Nayar, Chief Economist at ICRA said.

Moneycontrol has reported that the issue has again caught the attention of the Prime Minister’s Office and efforts are on to quickly address it. With the Indian rupee depreciating against the US dollar and commodity prices remaining high, the government expects the trade deficit to widen in the near term, officials said.

Costly imports

Higher crude oil prices meant that refined petroleum imports doubled to $20.7 billion in June, up from $ 10.6 billion a year back. Petroleum imports constitute the largest chunk of India's imports bill. Despite a much higher share of discounted crude coming in from Russia, the impact of higher global petroleum prices owing to Russia's invasion of Ukraine has continued to cost India.

Interestingly, the import of coal, coke & briquettes skyrocketed by an annual 241 percent to come to a staggering $ 6.4 billion in June. Imports in the category were $1.8 billion a year back in June 2021, showing the margin of increase in global prices.

Showing an annual increase of 26.8 percent, electronic goods remained the third-largest import category in June. Electronci imports rose to $5.8 billion, up from $4.6 billion in June 2021.

Another major expense for India, gold, saw imports rise by a huge 169 percent. Imports of the yellow metal rose to $2.6 billion in June, up from $969 million in the same month of the previous year.

In the current FY23 (2022-23), imports had risen by 62 percent in May and 26.6 percent in April. Cumulatively, merchandise imports stood at $187 billion in the first 3-months of FY23, as compared to the same period of FY22, witnessing a major growth of 47.3 percent.

India’s import bill hit a record-high of $612 billion in FY22. The trade deficit shot up to $190.7 billion in FY22 from $102.6 billion in FY21 and $161.3 billion in FY20, before the pandemic.

Exports remain strong

The latest data however also showed that merchandise exports continued to remain strong for the most part in June. However, the rate of export growth continues to steadily come down. While in June, exports grew 16 percent (year-on-year), the rate had been 20 percent in May and 24.2 percent in April.

This has been due to lower or negative growth in few sectors, key among which was engineering goods. "The slowdown in the world economy emanating largely from the Russia-Ukraine war is seen dampening the global trade. In the wake of the negative spillover of the war, engineering goods export has been affected. This has reflected in engineering exports declining 1.57 percent year-on-year in June to $9.14 billion as compared to $9.29 billion in June 2021," Engineering Exports Promotion Council India Chairman Mahesh Desai said.

Going forward, the intensity of any further impact would depend on how long the global uncertainties persist, he added. The high volatility in commodity prices, higher logistics costs and geo-political tensions remain key concerns for exporters in the sector.

Cumulatively, merchandise exports stood at $116.7 billion in the first 3-months of FY23, as compared to the same period of FY22, witnessing a growth of 22.2 percent.