India’s monthly trade trade deficit hit a new record $25.6 billion in June, according to preliminary estimates released by the Ministry of Commerce and Industry on Monday. This is the third and second consecutive month in seven months that the trade deficit has reached an all-time high. In June, the value of outbound shipments rose 16.8%, marginally slower than the 20.6% growth recorded in May, to nearly $38 billion — marking a third month in a row of moderation. Worryingly, four of India’s top 10 export items – engineering goods, cotton yarn, medicines and pharma and plastic products – contracted a year ago. Petroleum exports were up 98% from June 2021, but about $0.7 billion lower than in May 2022. Even as export growth decelerated, imports rose more than 51% to $63.6 billion in June, crossing the $60 billion mark for the fourth month in a row. Coal imports, up about 242% year-on-year, and petroleum flows, up 94.2%, accounted for nearly three-quarters of this jump. And although gold imports, which rose nearly eight-fold to 107 tonnes in May, fell from $6 billion that month to $2.6 billion in June, they were still up 169% from a year earlier. and were significantly higher than April’s imports of $1.7 billion. , The trade deficit widened to a record $70.25 billion for the first quarter, more than twice as much from a year ago.
With many developed markets expected to witness a slowdown or a sharp growth slowdown, the actual slowdown in exports is unlikely to change very soon due to weak global demand. Domestic demand for imports of oil, fertilisers, coal and even gold – a safe haven for investors amid turbulent financial markets – is largely inelastic, and global prices for these will rise this year. The import bill will continue to increase during the period. Rupee weakened, which fell further to 79.37. came on face to face The US dollar will further push up import costs on Tuesday. Analysts expect the rupee to hit $82 in the October-December quarter before recovering and the current account deficit will more than double this year’s GDP from 1.2% in 2021-22. Despite strong foreign exchange reserves, frequent outflows of foreign capital from financial markets have given rise to concerns about the balance of payments position. Last week, the government imposed an unexpected tax on crude oil production that could help allay concerns about the fiscal deficit. It also banned the export of petroleum products and acknowledged that gold imports were hurting the current account, raising customs duty from 10.75% to 15%. This could further hurt petroleum exports, while import duties may not quell India’s unique appetite for the yellow metal as much as might be expected. On the other hand, coal imports are expected to remain at record highs as monsoon will impact domestic production. Policy makers may have little room to break out of this vicious circle, but missteps must be avoided and domestic inefficiencies hurting exports must be urgently reviewed.