India: Trade deficit widens to over three-year high in December
Merchandise exports moderated to a 12.4% year-on-year expansion in December following November’s 30.5% jump, to a total of USD 27.0 billion. The deceleration reflected weaker growth in labor-intensive industries, including textiles and gems and jewelry, but higher overseas shipments of petroleum, engineering and chemical products buttressed December’s still-robust figure.
December’s resilient figure fed into the 12-month trailing sum of exports, annual growth of which rose to an over five-year high of 13.5% in December from 13.0% in November. The sum of exports in the 12 months up to December totaled USD 299 billion, which was slightly above the USD 296 billion figure recorded in the 12 months up to November.
Imports, on the other hand, leaped by a sharper 22.8% in December from 20.9% in November due to higher oil and gold imports. Higher inflation and waning effects from demonetization reignited interest on gold imports as a hedge against increasing price pressures, which prompted gold imports to soar 71.5% in a year-on-year basis in December. Oil imports were also up a sizeable 34.9% from the same month of the previous year in December, which reflects elevated global oil prices. Outside commodity imports, consumption and capital goods imports remained resilient, which points to improving domestic demand dynamics. Imports totaled USD 41.9 billion in December.
The double-digit increase boosted the 12-month trailing sum of imports, which hit a five-year high of 22.8% in year-on-year terms in the 12 months up to December from 20.9% in November. This brought imports to a 12-month total of USD 444 billion in December, above the USD 436 billion recorded in November.
Solid imports left the December trade deficit at USD 14.9 billion from USD 13.8 billion in November, the highest figure in more than three years. While exports are benefitting from the global upturn in trade, substantial commodity imports are weighing on the trade balance. This could spark concerns regarding a widening current account deficit, although funding risks remain contained on strong portfolio and FDI inflows.