India’s trade deficit hits 8-month low

India exported merchandise worth $32.21 billion in May 2021, 67% higher on a year-on-year basis and nearly 8% over May 2019’s pre-pandemic numbers.

The country’s merchandise trade deficit shrank to an eight-month low, as imports over the month amounted to $38.53 billion, 68.54% over May 2020 and 17.47% lower than May 2019.

Major sectors that saw a spurt in exports in May, compared to the pre-COVID times, included cereals, iron ore, cotton yarn and handloom products, jute, rice and ceramics. However, leather, tea, readymade garments, oil seeds, handicrafts and gems and jewellery, saw a significant dip over the same period.

The Federation of Indian Exporters’ Organisations chief Sharad Kumar Saraf said that 19 out of 30 major product groups have recorded impressive growth over May 2020, and the gradual opening up of major global markets is bolstering orders.

ICRA chief economist Aditi Nayar attributed the contraction in the trade deficit to $6.3 billion in May from $15.1 billion in April 2021 to the State wise restrictions that widened over May and curbed domestic demand for both gold and oil.

“A predominant 63% of the decline in the trade deficit in May 2021 relative to April 2021 was on account of the collapse in gold imports, with the balance led by a narrower oil deficit, led both by higher exports and lower imports,” she said, adding that exports had displayed a mixed trend.

“There is a sharp sequential rise in oil exports, even as non-oil exports dipped for the second consecutive month to US$26.9 billion in May 2021 from US$ 31 billion in March 2021. Importantly, non-oil, non-gold imports remained largely steady over April and May. To an extent, rising global commodity prices would have masked a dip in domestic demand,” she said.

“The need of the hour is to soon notify the RoDTEP (Remission of Duties and Taxes on Export Products) rates to remove uncertainty and help expedite new contracts with foreign buyers. The government must address some of the key issues including priority status to exports sector, release of the necessary funds for MEIS and clarity on SEIS benefits, among others,” Mr Saraf said.

Engineering Exports Promotion Council president Mahesh Desai said the release of assured duty refunds will provide a major push to the sector which recorded a 53% growth in May over last year and 16% over May 2019 levels. “This will not only improve the profit margins of the pandemic-hit exporters but also boost sentiments considerably,” he said.

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