Exports up 12.3% in December but imports jumped 21%; trade deficit at its widest in 3 years

The latest foreign trade data released by the Ministry of Commerce and Industry brings good tidings as well as worrying news. On one hand, exports jumped up 12.36% in December on a year-on-year basis, but on the other, India's trade deficit is at its widest in three years.

India's exports grew to $27.03 billion last month from $26.19 billion in November 2017 and $23 billion the preceding month. Cumulative value of exports for the period April- December stood at $223.5 billion as against $199.5 billion in the year-ago period. "Exports have been on a positive trajectory since August 2016 to December 2017 with a dip of 1.1% in the month of October 2017," the ministry said in a statement.

As usual, exports have been propelled by two main categories: While shipment of engineering goods jumped 25.3% to $7.3 billion, petroleum products went up 25.15% to $3.6 billion. Gems and jewellery, usually the second largest contributor to India's export basket after engineering goods, went up 2.4% to $3.2 billion. Other major commodity groups of export showing positive growth in December (y-o-y) were organic and inorganic chemicals (up 31.36% to $1.9 billion) and drugs and pharmaceuticals (6.95% to $1.7 billion).

Out of 30 major product groups, exports of 21 were in the positive territory in December 2017, which was three less than the preceding month. For instance, shipments of ready-made garments declined by 8% to $1.33 billion last month. "While decline in exports of minerals is understandable, the similar trend for apparel is extremely disappointing as appreciation of Indian rupee would further blunt the competitive edge of the sector," G.K. Gupta, president, Federation of Indian Export Organisations (FIEO) told The Hindu. Adding that exporters are having a "huge problem" in getting refund of input tax credit (ITC) both due to "ignorance and recalcitrant approach" of the tax authorities, he recommended close monitoring of GST refund for exports on a day-to-day basis.

Nonetheless, the future is looking good. "Since we have already achieved exports worth $224 billion in first nine months of the fiscal and global trade growth remains robust in 2018, we are on our course to achieve the milestone of $300 billion in 2017-18," said Gupta.

Unfortunately, India's imports have outpaced exports. Thanks to increased inbound shipments of crude oil and gold, imports surged to nearly $42 billion last month, up over 21% from December 2017. As per ministry data, the trade deficit, that is the difference between imports and exports, stood at $14.8 billion, up about 41% year-on-year. This is the widest gap in three years.

India, which imports most of its crude oil, had been the biggest beneficiary of low crude oil prices that had been in the range of $50-$55 a barrel for the past couple of years. This had not only helped India maintain a delicate balance on the current account deficit front but also pump prime government investments in infrastructure. Current account deficit is a measurement of a country's trade where the value of the goods and services it imports exceeds the value of the goods and services it exports.

But things took a turn for the worst with oil prices rising. According to experts, for every $1 rise in crude oil prices, the corresponding impact on the CAD will be to the extent of $1 billion. Now consider the fact that our imports of crude oil and petroleum products have gone up a whopping 35% in December 2017 (y-o-y) to cross the $10 billion mark at a time when benchmark global Brent (oil) prices have increased by 18.75%. In fact, oil prices hit a three-year high of more than $70 a barrel last week. It may have eased some in the past couple of days but prices are on track to post a fourth straight week of gains.

Other major commodity groups of import showing high growth in December 2017 over the corresponding month last year were electronic goods (surging 19.2% to  $4.6 billion), pearls, precious and semi-precious stones (shooting up nearly 94% to $3.4 billion) and gold (up 71.5% to $3.4 billion).

Demand for gold had taken a hit after GST was rolled out and imports had fallen for three straight months. According to analysts, its recent recovery-as well as the spike in demand for pearls and precious stones-can be attributed to restocking after the festive season.

While FIEO said the rising trade deficit "is alarming", it added that the import profile needs to be analysed carefully to see whether imports would augment domestic production or pose a challenge. "The rising import of gold and precious and semi-precious stones can help the exports of gems and jewellery sector in next few months," said Gupta.

Meanwhile, as per RBI data, exports in services in November 2017 were valued at $15.4 billion while imports were valued at $9.64 billion. In a press release, the apex bank said that the trade balance in services (net export of services) for the month was estimated at $5.74 billion.

With agency inputs