India Trade January 2018

India: Trade deficit widens to near five-year high in January

Merchandise export growth moderated for a second consecutive month in January, easing to a 9.0% year-on-year expansion from growth of 12.3% in December. Merchandise exports totaled USD 24.4 billion in January, The deceleration reflected weak performances in labor-intensive sectors—textiles and handicrafts—and in the electronics and agriculture segments, which more than offset robust export growth of chemicals and engineering goods.

Despite the back-to-back deceleration, resilient growth in exports fed into the 12-month trailing sum of exports, annual growth of which rose to 13.8% in January from 13.6% in December. January’s figure marked the highest expansion since May 2012. The sum of exports in the 12 months up to January totaled USD 302 billion, which was slightly above the USD 299 billion figure recorded in the 12 months up to December.

Merchandise imports jumped 26.1% in annual terms in January, above the already elevated 21.0% increase recorded in December. Imports totaled USD 40.7 billion in January. Rising global oil prices saw the oil import bill leaping 42.6% from the same month of the previous year in January, while commodity and capital goods imports also recorded very solid growth figures. Gold imports moderated substantially in January after soaring in December, the result of expectations of a lower custom duty being included in the FY 2018 budget, which finally did not materialize.

The massive increase boosted the 12-month trailing sum of imports, which hit an over five-year high of 24.0% in year-on-year terms in the 12 months up to January, up from 22.8% growth in December. This brought imports to a 12-month total of USD 452 billion in January, above the USD 444 billion recorded in December.

Robust import growth caused the January trade deficit to widen to USD 16.3 billion from USD 14.9 billion in December, marking the highest figure since May 2013. Many export-oriented sectors continue to suffer from the aftermath of demonetization and the implementation of the Goods & Services Tax, which limits the positive impact of an ongoing global trade upturn. This is compounded by rising commodity prices and a recovering domestic economy, which could spark concerns regarding a widening current account deficit. That said, funding risks remain contained on strong portfolio and FDI inflows.

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