Trade
DATA RELEASE
Highlights
 Trade balance turns
negative in July at
US$4.8bn after a rare
surplus of US$0.8bn in
June
 Led by sequential rise in
non-oil non-gold imports
 On a YoY basis exports
were lower by 10.2% in
July and capital goods
imports was lower by
37.7%
Gaura Sen Gupta
gaura.sengupta@idfcfirstbank.com
+91-22-7132 5562
Indranil Pan
indranil.pan@idfcfirstbank.com
+91-22-7132 5631
For Private Circulation only.
Economics Research
Deficit led by rise in imports
14 AUGUST 2020
After registering a rare surplus in June, trade balance turned negative again at
US$4.8bn in July (v/s US$0.8bn surplus in June). Imports revived rising by
US$7.4bn M-o-M, led by higher non-oil non-gold imports. Within non-oil non-
gold imports, the pick-up was led by consumer durables, indicating some
improvement in demand. Imports are now at 72% of levels last year, after
crashing to 40% in April during the peak period of the Lockdown. Meanwhile,
Exports were also higher albeit by a more moderate pace, higher by US$1.7bn
M-o-M, led by engineering goods and textiles. The recovery in exports has
been faster than imports, with exports now reaching 90% of levels last year.
For the full year FY21 we expect a current account surplus of 0.1% of GDP,
with imports remaining significantly weaker than exports and low oil prices.
Sequential rise in imports led by consumer durables: Merchandise imports rose
by US$7.4bn M-o-M in July after declining by US$1.1bn in June. The sequential rise
was due to higher non-oil non gold imports which rose by US$4.6bn M-o-M to
US$20.2bn in July. Within NONG imports, the rise was led by consumer durables
such as electronic goods (+US$1.6bn) and precious stones (+US$0.3bn). Gold
imports were higher by US$1.2bn to US$1.8bn in July. The rise in values terms was
due to elevated gold prices as well as pick-up in volumes which had come to near
standstill during the peak period of the lockdown in April. Meanwhile, crude oil
imports were also higher by US$1.6bn M-o-M, reflecting the impact of higher crude
oil prices (ICB was higher by 6.7%MoM) and higher volumes. A pick-up was also
seen in industrial inputs with a slight rise in capital goods imports (+US$0.7bn M-o-
M) and chemicals (+US$0.6bn).
On a YoY basis, the pace of contraction in total imports moderated to -28.4%YoY in
July from -47.6% in June. The pace of contraction also eased for capital goods
imports which contracted by 37.7%YoY in July v/s 42.1% contraction in June,
reflecting some improvement in industrial activity.
Sequential expansion in exports led by engineering goods: Merchandise
exports was higher by US$1.7bn M-o-M in July after rising by US$2.9bn in June. The
sequential pick-up in exports has been gradually reducing after rebounding by
US$8.7bn in May, which might be have been due to pent-up demand. Majority of the
sequential increase in exports was led by manufacturing goods with rise in
engineering goods (US$0.6bn M-o-M) and ready-made garments (US$0.3bn).
Meanwhile oil exports were lower on a sequential basis.
On a YoY basis, the pace of contraction in total exports has moderated to -10.2% in
July after declining by 12.4% in June. Destination-wise detail available till June 2020,
shows that India’s exports to China have shown a strong growth, averaging at
63.3%YoY in May and June. Exports to other destinations continues to contract but
the pace has moderate – exports to US lower by 11.2%YoY in June v/s -42% in May
and exports to Europe lower by 26.1%YoY in June v/s -43.3%YoY in May.
FY21 current account surplus estimate of 0.1% of GDP: On a FYTD basis (April
to July), merchandise trade deficit is tracking at US$13.95bn vs. deficit of US$59.4bn
in FYTD20. The sharp reduction in trade deficit is led by 46.7%YoY contraction in
imports (on a FYTD basis), countering the 30.2% decline in exports. In the coming
months we expect trade deficit to gradually increase as domestic activity picks-up
supporting demand for imports. However, the rise in deficit will be gradual as demand
for imports is likely to remain weak both for industrial inputs and consumer durables.
Production levels are not expected to reach pre-covid19 levels this year as producers
will need to comply with social distancing norms and restrictions on mobility will be
lifted only gradually as Covid19 cases continue to rise in India. Demand for consumer
durable imports will also remain muted due to decline in disposable incomes and job
losses. To add to this crude oil prices are expected to remain range-bound as global
growth is expected to contract s harply this year. In contrast exports are likely to see
a faster recovery, as the outbreak has been brought under control in key export
markets such as Europe and Asia. However, cases continue to rise in US which
accounts for 16.6% of India’s total exports. Overall, we expect a small current
account surplus of 0.1% of GDP, with contraction in imports outpacing the decline in
exports.
“Important disclosures appear at the back of this report”
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Exhibit 1: Trade deficit detail

USD Bn YoY%
Jul-19 May-20 Jun-20 Jul-20 Jun-20 Jul-20
Trade deficit -13.4 -3.1 0.8 -4.8
-Exports 26.3 19.1 21.9 23.6 -12.4 -10.2
-Non-oil exports 22.7 17.4 20.0 21.9 -10.1 -3.6
-Oil exports 3.7 1.6 1.9 1.8 -31.6 -51.5

-Imports 39.8 22.2 21.1 28.5 -47.6 -28.4

-Oil imports 9.6 3.5 4.9 6.5 -55.3 -32.0
-Non-oil non gold imports 28.4 18.6 15.6 20.2 -41.4 -29.1
-Gold imports 1.7 0.1 0.6 1.8 -77.4 4.2
Source: CEIC, IDFC FIRST Bank Economics Research

Exhibit 1: Trade balance turns negative in July… Exhibit 2: …Led by rise in imports
50 US$ bn Agriculture Consumer durable Petroleum
Exports Imports
Ores Chemicals Base metals
45
Capital goods Others Total imports
40 50.0
45.0 ImportsUS$bn
35 Trade deficit Trade 40.0
30 surplus 35.0
25 30.0
25.0
20
20.0
15 15.0
10 10.0
5.0
5
0.0
Apr-19

Nov-19
Dec-19
Oct-19

Apr-20
Aug-19
Sep-19
Feb-19

Feb-20
Mar-19

Mar-20
Jul-19

Jul-20
May-19

May-20
Jan-19

Jan-20

Jun-20
Jun-19

Aug-19
Sep-19
Apr-19

Oct-19

Apr-20
Nov-19
Dec-19
Mar-19

Mar-20
Feb-19

Jul-19

Feb-20

Jul-20
May-19

May-20
Jun-19

Jan-20
Jan-19

Jun-20
Source: CEIC, IDFC FIRST Bank Economics Research Source: CEIC, IDFC FIRST Bank Economics Research

Exhibit 3: M-o-M rise in exports led by manufacturing Exhibit 4: India’s exports to China rise
80%
Agri & allied Ores and Minerals Manufacturing India's export growth YoY%, 3MMA
35
Petroleum Others Total exports 60%
30 Exports US$bn
40%
25
20%
20
0%
15

10 -20%

5 -40%
EU US Africa Asia ex. China China Total
0 -60%
Aug-19
Sep-19
Apr-19

Oct-19

Apr-20
Nov-19
Dec-19
Mar-19

Mar-20
Feb-19

Jul-19

Feb-20

Jul-20
May-19

May-20
Jun-19

Jan-20
Jan-19

Jun-20

Sep-16

Sep-17

Sep-18

Sep-19
Dec-17

Dec-18
Dec-16

Dec-19
Mar-16

Mar-17

Mar-18

Mar-19

Mar-20
Jun-16

Jun-18

Jun-19

Jun-20
Jun-17

Source: CEIC, IDFC FIRST Bank Economics Research Source: CEIC, IDFC FIRST Bank Economics Research

2 | IDFC FIRST BANK ECONOMICS RESEARCH 14 August 2020

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3 | IDFC FIRST BANK ECONOMICS RESEARCH 14 August 2020