In FY 2021-22, India’s merchandise exports increased by 44.6% while imports increased by 55.3%. For the first time, the total amount of merchandise trade exceeded $1 trillion, with exports reaching $422 billion and imports reaching $613 billion. Despite several issues such as disrupted supply chains, a shortage of containers and delays at ports, trade has increased.
The increase in trade has contributed to a deterioration in India’s trade balance, with imports exceeding exports. The trade imbalance widened, barely exceeding the peak of 2012-2013. An increase in crude oil and gold import bills contributed to a deterioration in the trade balance that year. A sharp rise in commodity prices boosted export and import growth in fiscal 2022 as demand soared after economies pulled out after months of lockdown.
India exports to 240 countries and jurisdictions and buys from 229 countries and jurisdictions. However, the largest trade flows are with the United States and China.
In 2021-2022, the United States and China accounted for more than a quarter of India’s foreign trade. The United States took over the top spot from China the previous year, but the difference was only about $4 billion. Despite some anti-China sentiments, India’s exports to the United States and imports from there are up around 50% year-on-year, while imports from China are up about 45%. Exports to China remained unchanged.
Among major trading partners, two-way merchandise trade with Australia grew the fastest, with both exports and imports doubling over the year. Despite this, Australia accounts for only 2.4% of the total value of goods traded between the two nations.
Due to the high price of crude oil, India’s imports from oil producing countries have increased dramatically. Saudi Arabia, Kuwait, Oman and Iraq increased their imports by more than double, while the United Arab Emirates and Qatar increased theirs by almost 70%.
The trade imbalance has increased
In 2021-22, India’s trade deficit grew by 85.8% to $190 billion. China had the largest trade imbalance, estimated at $72.9 billion. It was the equivalent of 40% of the trade deficit for the year. Electronic components, computer hardware, telecommunication instruments (mainly mobile phones), organic and other chemicals, and machinery are some of the items that India imports from China.
Six oil-exporting countries – Iraq, Saudi Arabia, United Arab Emirates, Qatar, Kuwait and Oman – accounted for half of the total deficit.
Is the growing trade imbalance a concern?
Given the substantial growth in the merchandise trade deficit, India’s current account deficit is expected to hit a three-year high of over $40 billion in 2021-22. Over the past year, India posted a current account surplus as the value of imports declined, helped in part by lower crude oil prices. One of the most important components of the current account balance is the merchandise trade deficit. Net income from trade in services, net investment income and net workers’ remittances are among the other components.
It will balance out some of the goods trade deficit as long as the gains from services trade and workers’ remittances remain strong. However, rising prices for crude oil and other commodities could widen the trade deficit even further, putting further pressure on the rupee to weaken.