'Robust demand for imports to provide upside risk'

MUMBAI: The trade deficit figures in the coming months is expected to moderate in the coming months due to lower commodity prices and easing pressure on global supply chains, increasing risks to exports and relatively robust demand for imports is now likely to provide an upside risk to our FY23 current account deficit projection of $105 billion, Acuite ratings said in a report.

The increasing pressure on merchandise trade deficit is a confluence of six factors such as domestic pent-up demand, slowdown in global growth, lagged impact of elevated commodity prices, temporary export restrictions imposed by the government and persistence of supply chain pressure.

India’s trade deficit in July 2022 widened to $31.02 billion from $26.18 billion in June due to inflated commodity prices.

The merchandise exports in July have moderated ro $36.3 billion from $40.1 billion in the previous month.

This translated into an annualised growth of 2.1 per cent on-year, the weakest in last 17-months. The drop in momentum in exports is driven by the intense global headwinds, continuing geo-political conflict and importantly, the sharp rise in interest rates in the developed economies that induced capital flows out of developing nations and a significant depreciation in their currencies.

The sequential decline was led by petroleum products, agri and allied products, gems and jewellery, chemicals, machinery Items, and textiles.

The decline in oil exports could be on account of correction in international prices as well as imposition of windfall tax by the government.

On the imports front, merchandise imports came in at $66.3 billion in July.

Electronic Items, base metals, agri and allied products, and gems and jewellery were key sub-categories within imports that saw a sequential increase during the month. While, chemicals saw a modest sequential increase, it nevertheless touched a record monthly high of $6.4 billion in July 22. Cumulative imports for the first four months of FY23 stand at $256.4 billion, marking an expansion of 48.1 per cent compared to the corresponding period in FY22.

Electronic Items, base metals, agri and allied products, and gems and jewellery were key sub-categories within imports that saw a sequential increase during the month