India recorded a trade surplus in June for the first time in more than 18 years as the domestic demand slump following the coronavirus outbreak hit imports harder than exports, showed data released on Wednesday by the commerce ministry.
In June, merchandise exports contracted 12.4%, while imports dipped 47.6%, leading to a trade surplus of $790 million. The drop in exports belied initial hopes that outbound shipments will turn a corner in June.
Last month, trade minister Piyush Goyal had tweeted that exports of $4.94 billion in the first week of June was almost at the same level ($5.03 billion) of the year-ago period. Exports of 12 out of 30 major items turned positive during the month. The narrowing of exports contraction was led by growth in exports of pharmaceuticals (9.9%), chemicals (19.1%), iron ore (63.1%), rice (32.7%), cereals (19.3%) and fruits and vegetables (11%).
However, contraction of imports remained high as crude oil imports fell 55.3% compared to the same period a year ago.
Among the 30 major items, imports of only vegetable oils (8.5%), pulses (0.1%), sulphur and unroasted iron pyrites (24.3%), and pharmaceutical products (0.3%) registered a growth. Import of gold continued to lose its shine with a 77.4% drop in June.
“Given the delayed recovery in imports, we expect the merchandise trade deficit to shrink to $10-12 billion in Q1 FY21 from around $46 billion in Q1 FY20. However, the ongoing economic uncertainty would severely impact inward remittances. Balancing these contrasting trends, we expect a current account surplus of $14-16 billion in Q1 FY2021," said Aditi Nayar, principal economist, Icra Ltd.
India’s current account balance recorded a surprise marginal surplus at 0.1% of gross domestic product (GDP) in the March quarter, against 0.4% in the December 2019 quarter, after a gap of 12 years because of a lower trade deficit and a sharp rise in remittance inflows. The significant slump in domestic economic activity because of the lockdown imposed to prevent the spread of coronavirus significantly curtailed imports and India’s current account balance is expected to turn surplus in FY21.
Last month, the Organisation for Economic Cooperation and Development (OECD) had said that it expects the world economy to contract by 6-7.6% in 2020, depending on a single-hit or a double-hit scenario, respectively. It expects India’s economy to contract by as much as 7.3% in FY21, if a second wave of coronavirus sweeps the country.
In April, the World Trade Organization had projected global merchandise trade to drop by 13% to 32% in 2020 because of the pandemic.
Last month, WTO said initial estimates for the June quarter, when the virus and associated lockdown measures affected a large share of the global population, indicate a year-on-year drop of around 18.5%, closer to the optimistic assessment.
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