India: Trade deficit narrows in February; export and import growth decelerates
Merchandise export growth softened for a third consecutive month in February, decelerating to 4.4% year-on-year from 9.0% in January and totaling USD 25.8 billion. The relatively feeble increase in February was the result of a broad-based decrease in export growth. Manufacturing export growth halved, due to softer engineering goods and gems and jewelry exports offsetting higher exports of labor-intensive sectors, electronic goods and pharmaceuticals. Similarly, overseas shipments of agricultural products were weaker compared to the previous month.
In light of the back-to-back deceleration in the headline figure, annual growth in the 12-month trailing sum of exports moderated to 12.7% in February from 13.9% in January. The print recorded in January had marked the highest expansion in nearly five years. The sum of exports in the 12 months up to February totaled USD 303 billion, which was a tad above the USD 302 billion figure recorded in the 12 months up to January.
Merchandise imports also moderated markedly in February. Imports expanded 10.5% from the same month of the previous year to a total of USD 37.8 billion. The figure, however, was more than half the 26.0% surge recorded in the previous month. Lower global oil prices saw oil import growth moderating in the month, while gold imports contracted again. Although consumer imports were resilient in February, capital goods imports recorded a more noteworthy deceleration.
The weaker increase was reflected in the 12-month trailing sum of imports, which moderated from January’s five-year high of 24.2% to 22.9% in February. This brought imports to a 12-month total of USD 457 billion in February, slightly above the USD 453 billion recorded in January.
The faster deceleration in imports caused the February trade deficit to narrow to a still sizeable USD 12.0 billion (January: USD 16.3 billion). The external sector remains beset by uncertainty induced by the implementation of the Goods & Services Tax (GST), particularly exporters that continue to face delayed GST refunds due to tax filing discrepancies. Similarly, recent decisions by the RBI to ban letters of undertaking and letters of comfort—which importers used to obtain overseas financing—could result in rising costs of financing and increased working capital constrains.