India's trade deficit up 3x in July at $31 bn

India’s monthly merchandise trade data showed a marginal decline in exports, sustained strong growth in imports, and a record trade deficit for July 2022. The changes reflect the global commodity price trends and supply chain disruptions, analysts say.

According to the monthly trade data released by the commerce ministry on August 2, India exported goods worth $35.24 billion in July, a tad lower than $35.51 billion in July 2021. The imports touched $66.26 billion, an increase of 43.59% over $46.15 billion during the same period. The trade deficit in July 2022 was $31.02 billion as against $10.63 billion in July 2021.

“A marginal decline of 0.76% indicates the strong resilience of the exports sector despite measures to control inflation and the continued disruptions of supply chains due to Covid and Russia-Ukraine conflict. Signs of a likely slowdown in exports can been seen as global inventories are pretty high and the merchandise exports is facing the triple whammy — a shift in consumption from goods to services with opening up of economies after Covid-19 pandemic, inflation affecting all economies, reducing the purchasing power, and many economies entering recession, while some advanced ones are already in recession,” says A Sakthivel, president, Federation ofIndian Export Organisations (FIEO).

The growth in imports was led by increase in prices and import volumes of coal, crude oil, electronics and machinery during the month. Import of organic and inorganic chemicals, pearls, precious and semi-precious stones, vegetable oil, etc. also contributed to the import growth.

“For the third straight month in a row, value of non-oil import is higher than $40 billion, which reflects India’s rising import dependence for coal, electronics and machinery items.This time around, another factor leading to high trade deficit is the tepid export performance. Our July 2022 export is at a 4-month low as we are seeing fall in overseas demand for our textile, engineering, pharma, gems and jewellery products due to slowing global economic activity in USA and Europe," says Vijay Kalantri, chairman, MVIRDC World Trade Center, Mumbai.

The commerce ministry said that India has been able to maintain almost the same level of exports in July despite measures to control inflation and the continued disruptions in supply chains due to Covid and Russia-Ukraine conflict.

“The export figures have also been affected as the prices of most of the metals and commodities are falling, which has resulted in value-wise export realisation. However, merchandise exports during April-July 2022-23 at $156.41 billion, an increase of 19.35% over $131.06 billion in April-July 2021-22, showcase the strength of the exports sector amidst challenging ongoing geopolitical and rising global uncertainties,” Shaktivel says.