Sharp rise in oil & gold import bill widens April FY25 trade deficit

Following a year-on-year decline in the previous financial year, India's merchandise exports have begun the current financial year on a positive note, showing a year-on-year growth rate of 1.08% for April 2024. Additionally, service exports have sustained their momentum from the previous year, demonstrating a robust growth of 14.7%, rising from USD 25.78 billion in April 2023 to USD 29.57 billion April 2024.??

?Export Growth?

Merchandise export growth in April 2024 was driven by petroleum products, organic & inorganic chemicals and pharmaceutical goods.??

Among goods exports, 13 out of 30 principal commodities have recorded positive year-on-year growth, while exports of 17 commodities have declined year-on-year. Although India's overall goods export may have seen a marginal increase, the combined exports of 23 commodities, including agro-related and labor-intensive principal commodities, have declined by 3.6%, dropping from USD 10 billion to USD 9.6 billion. Of these, the highest decline was seen in gems and jewellery (-6.9%) and agro commodities (-3%).??

?Sharp rise in imports??

While merchandise exports have experienced moderate growth, there has been a notable surge in merchandise imports, with imports soaring in double digits from USD 49 billion in April 2023 to USD 54 billion in April 2024, marking a growth of 10.27%. Despite this sharp increase in imports, only 16 out of the 30 principal commodities have witnessed a year-on-year growth in imports.?

?Petroleum products, constituting a major share of India’s goods imports, have witnessed a 20% increase in their import value, rising from USD 13.7 billion to USD 16.5 billion. A notable trend discerned from the import data is the decline in imports of industrial goods such as electrical & non-electrical machinery, organic & inorganic chemicals, transport equipment, iron & steel, etc., juxtaposed with a significant surge in gold imports, which have soared by 209% from USD 1 billion to USD 3.1 billion. Additionally, imports of pulses have sharply risen by 172%, escalating from USD 151 million to USD 411 million. Furthermore, there has been a notable uptick of 27.6% and 24% in imports of fruits & vegetables and vegetable oil, respectively. Importation of these agricultural commodities may contribute to alleviating inflationary pressures in these sectors. It is noteworthy that Consumer Price Index (CPI) inflation in pulses has remained in the double digits for the last 11 months, alongside a sudden surge in vegetable inflation.?

?Trade Deficit shoots up?

?Merchandise trade deficit has surged significantly by 32.3% year-on-year, escalating from USD 14.4 billion to USD 19.1 billion, primarily due to a sharp increase in oil imports. This upsurge in oil imports is attributed to the heightened international prices of the Indian oil basket, which, according to the Petroleum Planning and Analysis Cell, has increased by 7% year-on-year for April. We anticipate the trade deficit to further expand in May, given the expected sharp increase in oil prices for the Indian oil basket.?

?Outlook:?

?The increasing oil prices may pose a risk to India's current account position, which was manageable in the last financial year. However, the expectation of finalizing Free Trade Agreements (FTAs) with economies such as Oman and the UK may present new export opportunities to Indian exporters. The current financial year may prove to be challenging yet filled with opportunities for India's international trade.?

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Going forward, we suggest the government to support Indian exporters in this challenging geopolitical situation by extending Interest Equalisation scheme (IES) for the full financial year.?