Of late, India's imports have been growing faster than its exports, widening its trade deficit. While growth in exports after several quarters of decline is a positive, India cannot afford to ignore the trade deficit, especially when the world's biggest market, the US, as well as the biggest exporter, China, are trying to reorient their policies towards deeper engagement with its trade partners.
In May, the merchandise trade deficit of the country touched $13.84 billion, the highest in the past two-and-a-half years. The main reason was a surge in gold imports -- 237 per cent rise from $1.47 billion in May 2016 to $4.96 billion. Electronic goods imports rose 34 per cent from $3 billion to $4.2 billion while imports of pearls and precious & semi-precious stones rose 37.6 per cent. Imports of crude oil and petroleum products, the biggest category in India's import basket, rose 29 per cent to $7.69 billion from $5.94 billion in the same month last year. The cumulative effect was a 33 per cent increase in India's import bill - from $28.44 billion to $37.86 billion.
As compared to this, exports were $24 billion, 8.32 per cent higher than the $22.2 billion in the same month last year. Petroleum, refined and value added, led this by growing 25 per cent to $2.5 billion. Gems and jewellery grew 6 per cent to $3.9 billion. Engineering goods, the biggest component of India's export basket, grew 8.25 per cent to $6.2 billion. A lot of India's key exports use imported components or raw materials. However, export of these items is lower than the imports. Much of it is for domestic consumption.
A look at the numbers tells us that growth in foreign trade, at least in value terms, is not broad-based and exposed to large fluctuations. It also reveals that overall export growth need not signal job growth as employment intensive sectors can lag. Examples are a 7.8 per cent decline in drugs and pharmaceutical exports (from $1.3 billion in May 2016 to $ 1.2 billion this year). Similarly, exports of leather and leather-based products declined 3 per cent. Handloom, cotton yarn and fabrics declined over 2 per cent. Exports of jute products fell 14 per cent and handicrafts 4 per cent.
One should appreciate that Indian exports are in a positive phase after a long spell of decline. At the same time, one should also be cautious about the trade deficit, especially when several countries, including the US, are trying to narrow their trade deficits, and leading exporters, including China, are looking for a deeper engagement with its trade partners to find newer and bigger markets for their goods and services.
The widening trade deficit calls for a reality check. The mid-term review of the foreign trade policy, due now, is perhaps the best occasion. ~