Signs of recovery? Trade contraction narrows sharply to 28.4% in July

Merchandise exports dropped by only 10.2% year on year in July against a 12.4% fall in the previous month, but a contraction in imports narrowed sharply to 28.4% from 47.6%.

Consequently, trade balance swung from the first monthly surplus ($0.8 billion) in about 18 years in June to a deficit of $4.83 billion in July, although it still remains less than a half of the usual trend. Exports in July stood at $23.64 billion, while imports touched $28.47 billion.

Lower import fall suggests demand in the economy is limping back (as lockdown curbs were substantially lifted from June), although it’s still far from normal. What also augurs well is that core exports (excluding petroleum and gems & jewellery) grew for the first time this fiscal, by 3.4% y-o-y in July, shaking off the impact of Covid.

Services exports in June dropped 8.4% to $17 billion, while imports eased by 15.3% to almost $10 billion, showed the RBI data released on Friday.

Commerce and industry minister Piyush Goyal said last Saturday that goods export contraction narrowed further in the first week of August to just 5% and the outbound shipments of non-oil and non-gems & jewellery exports, in fact, grew by as much as 10%, indicating the worst was well behind us.

If the momentum improves in the coming days, it could be the first time since February that merchandise exports will grow in a month.

While a sustenance of the recovery in exports will be known only after 3-4 months, improved trade balance will mean India could even witness a current account surplus in the first half of this fiscal, against a deficit of 1.5% of GDP a year before.

Goods exports had witnessed a record 60% crash in April following a Covid-induced nationwide lockdown, although the contraction narrowed to 37% in May and 12% in June. In the April-July period, exports dropped by 30.2%, while imports fell 46.7%.

Exports of commodities that grew in July included engineering goods, iron ore and farm products such as rice, oilseeds and oil meals.