Merchandise exports in July fell 0.8% from a year earlier, albeit on an unfavorable basis, to $35.2 billion, the first monthly decline since February 2021 and from a jump of 23.5% year-on-year recorded in June, preliminary data released by the Ministry of Commerce on Tuesday showed.
Imports, however, jumped 43.6% in July to $66.3 billion, pushing the trade deficit to a new monthly high of $31 billion. Sequentially, exports in July were down nearly 12% from the June level.
To reporters, BVR Commerce Secretary Subrahmanyam told export restrictions on a range of products in recent months – including high export duties on some steel and iron ore products, a tax exception on petroleum products and restrictions on wheat exports – led to a drop in outbound shipments of goods. “These were necessary measures to bring domestic inflation under control, but they also contributed to the stagnation of exports in July,” he said. Without these measures, exports would have recorded decent growth in July, he added.
Supply chain disruptions following the war in Ukraine and interest rate tightening by major central banks also played their part.
Importantly, exports of petroleum products fell 7% year-on-year in July to $5.8 billion; these exports had increased by 119% in June. Sequentially, these exports collapsed nearly 33% in July from the June level, reflecting the impact of the windfall tax introduced from July 1, the data showed.
Similarly, exports of iron ore collapsed 94% year on year in July and those of steel products fell 2.5%. On May 22, the government increased the export duty on iron ore from 30% to 50%. Similarly, a 45% export duty was imposed on iron ore pellets, while a 15% duty was imposed on certain pig irons, flat-rolled products of iron or non-alloy steel, and rods and various flat-rolled stainless steel products. steel.
The trade deficit in the first four months of this fiscal year hit a record $100 billion. This will put pressure on the current account deficit (CAD), which is expected to more than double to 3.1% of GDP in FY23, according to an estimate by Fitch. Without imports of oil, gems and jewelry, the deficit would have been only $37 billion through July this fiscal year, Subrahmanyam said. However, given that goods exports reached $156 billion in the first four months of this fiscal year, they are likely to reach as high as $500 billion in fiscal year 23, compared to $422 billion in in FY22, the Commerce Secretary said.
He conceded that any potential slowdown in demand in the US and EU due to the recession is a cause for concern. However, the possible diversion of orders from Covid-hit China, the benefits of trade agreements with the United Arab Emirates and Australia signed earlier this year and increased efforts to diversify markets will more than offset any potential shortfall on any what a market, said the secretary. .
Interestingly, core imports (excluding oil, gems and jewelry) were only $38.44 billion, the secretary said.
But overall imports soared due to a 70% jump in purchases of petroleum and petroleum products, 164% coal and 47% edible oil. Of course, a price spike dramatically inflated the oil and coal import bill
Aditi Nayar, chief economist at CIFAR, said the CAD would likely top $30 billion in the June quarter, a fallout from rising commodity prices and the equivalent of about 80% of the full year figure for FY22.
“Lower commodity prices should temper the trade deficit going forward, although strength in goods and services exports amid fears of a global slowdown remains crucial. Nonetheless, July’s high trade deficit does not bode well for the magnitude of the current account deficit in the second quarter of FY23,” Nayar said.
A Sakthivel, chairman of exporters’ umbrella body FIEO, said: “Signs of a likely slowdown in exports can be seen as global stocks are quite high and merchandise exports are facing the triple whammy: i) there is again a shift in consumption from goods to services with the opening of economies after the Covid-19 pandemic; ii) inflation affecting all economies reducing purchasing power and iii) many economies entering recession while some advances are already in recession.