India’s trade gap in November narrowed marginally from a near three-year high last month as export growth bounced back and import of certain commodities saw seasonal slowdown.
The trade deficit, the gap between exports and imports, increased 3.1 percent over last year to $13.83 billion, according to data from the commerce ministry. While the deficit was higher than the same month last year, it has narrowed from $14 billion in October.
Exports bounced back after declining for the first time in fifteen months in October. The value of outbound shipments grew 31 percent over last November to $26.2 billion, particularly from a sharp rise in export of engineering and petroleum products.
The trend is similar to that seen in other Asian economies like Korea, China and Taiwan which too posted strong export growth, Morgan Stanley Research said in a prior note.
The value of engineering goods, the largest contributor to India’s exports, saw a 43.8 percent rise over last year to $7.1 billion after a marked slowdown in October. Gems and jewellery exports, the second largest contributor, climbed 32.7 percent to $3.3 billion after contracting last month.
Indian exports have been on a downtrend since 2014-15, adversely impacted by a global slowdown, a sharp fall in commodity prices and currency fluctuations. It started recovering in July 2016 and had been on the rise since, but growth was offset by India’s large import bill led by higher import of gold and oil.
Imports in November rose 19.6 percent over last year to $40 billion. The pace of import growth was faster than that seen in October due to a sharp rise in crude oil prices and the value of inbound shipments of precious stones and pearls.
Oil shipments, the largest burden on India’s import bill, went up 39 percent over last year to $9.5 billion. Global crude oil prices have rebounded from the year’s low in June to reach nearly $65 per barrel for the first time since 2015, after exporting countries triggered production cuts to drain the global oversupply. The benchmark Brent crude prices were 34 percent higher than November last year.
Since India imports nearly 80 percent of its oil needs, fluctuation in global prices have a cascading impact on the trade deficit. “Even an average annual $1 increase in oil price can lead to an increase in oil imports by $1.56 billion, annually,” wrote Soumya Kanti Ghosh, chief economic adviser at State Bank of India, in an earlier note.
While oil imports usually see a seasonal drop in volume in November, according to Bloomberg Intelligence, it hasn’t reflected in the import bill due to the higher prices.
Gold imports fell for a third straight month to $3.2 billion, 26 percent lower than in last November as demand tapered off. Demand for gold was expected to slow down under India’s new sales tax regime, according to the World Gold Council.
A higher import bill increases India’s risks of a fiscal slippage. The country had exhausted 96.1 percent of its budgeted target for fiscal 2018 by October. It is trying to bring down its fiscal deficit to 3 percent of the GDP by 2019.
Export of petroleum products went up 47.7 percent to $3.6 billion.
Readymade garment exports fell 10 percent to $1.03 billion.
Export of organic and inorganic chemicals also saw a 54.2 percent rise to $1.6 billion.
Pharmaceutical exports increased 13.4 percent to $1.6 billion.
Export of plastic and linoleum went up 40.9 percent to $0.6 billion.
Leather exports remained largely flat at $0.4 billion
Electronic goods exports increased 26 percent to $0.58 billion.
Pearls, precious and semi-precious stone imports increased 86 percent to $2.9 billion.
Coal and coke imports increased 52 percent to $1.9 billion.
Organic and inorganic chemicals went up 49 percent over last year to $1.8 billion.
Iron and steel imports increased 36 percent to $1.2 billion.
Ores and mineral imports increased 50 percent to $0.8 billion.