Trade shrinks; deficit widens

by Madhumita Gokhale

India’s merchandise trade deficit shot up to an all-time high of USD 23.3 billion in November 2021, as per preliminary data released by the Ministry of Commerce and Industry. In comparison, the deficit was USD 17.8 billion in October 2021. The rise in India’s trade deficit can be traced primarily to a steep month-on-month (m-o-m) fall in its export earnings. In November 2021, India’s merchandise exports declined by 16.1 per cent over the previous month, while imports contracted by a lower 0.5 per cent.

Merchandise exports in India have been well above the corresponding pre-Covid level since March 2021, in spite of the second wave of Covid-19 hitting the country. In October 2021, the value of exports peaked at USD 35.6 billion. But in November 2021, there was a significant decline, to USD 29.9 billion. Nevertheless, these were 15.9 per cent higher than the corresponding pre-Covid level.

The decline in export earnings was more pronounced for petroleum, oil & lubricants (POL), as compared to non-POL commodities. The value of POL exports contracted by 28.3 per cent m-o-m in November 2021. It amounted to USD 3.8 billion, as against USD 5.3 billion in October 2021. The steep decline in POL import value can partly be explained by decline in their prices. After climbing to a record high level in October 2021, global crude oil prices fell by 1.8 per cent m-o-m in November.

Non-POL commodities recorded a comparatively smaller decline of 14 per cent in export earnings over October 2021. Non-POL exports had amounted to USD 30.3 billion in October 2021. In November, the value of non-POL exports fell to USD 26 billion. This was the lowest level of non-POL recorded since February 2021. Non-POL exports had fallen by 3-6 per cent m-o-m in November of the past three years. But, the fall in November 2021 was more pronounced, indicating a possible weakening of external demand from India’s trading partners.

The fall in the value of India’s imports was smaller as compared to its exports. India’s merchandise import bill fell from USD 53.4 billion in October 2021 to USD 53.1 billion in November 2021. Unlike exports, India’s imports had dipped in May 2021 to USD 38.8 billion. This had reflected the fall in domestic demand amid the second wave of Covid-19, due to restrictions on mobility imposed by state governments. Imports in May 2021 were 16.8 per cent lower than in May 2019. But in the subsequent months, domestic demand picked up again, with the value of imports exceeding the corresponding pre-Covid level since June 2021. India’s import bill in November 2021 remained 38 per cent higher than its corresponding 2019 level.

The m-o-m decline in imports seen in November was due to a 5.9 per cent fall in non-POL imports. The value of non-POL imports fell to USD 38.5 billion in November 2021 from USD 40.9 billion in October. The import bill of gems & jewellery declined sharply in November 2021 as compared to the previous month. Global prices of gold and silver rose by 2-4 per cent m-o-m in November 2021, following five consecutive months of decline in prices. The fall in their import bill in November thus reflects a fall in the quantity imported.

In contrast, POL imports grew by 17.1 per cent in November 2021 over October 2021, amounting to USD 14.7 billion. The increase in their value, coupled with the m-o-m fall in global prices of petroleum products, indicates an overall increase in the quantity of POL imports in November 2021 as compared to October 2021.

The widening of trade deficit in November is a mild cause for concern despite India sitting on a huge pile of forex reserves of USD 642 billion. This is enough to cover more than 12 months of imports at the current level. The source of mild concern is that the deficit did not widen because of an expansion in foreign trade. On the contrary, both exports and import shrank in November compared to October. A fall in prices of crude oil played a role in both. But, the deficit widened because the m-o-m decline in merchandise exports was much steeper than the fall in imports.

The Indian rupee has been under some pressure. Foreign portfolio investors have recorded net outflows in November and there is the threat of interest rates rising in USA. In light of these developments, if the merchandise trade deficit continues to widen further in the coming months it can exert pressure on the country’s exchange rate.

India’s merchandise trade
Month Exports Imports
USD billion    
  Apr 21 30.7 46.0
  May 21 32.3 38.8
  Jun 21 32.5 42.1
  Jul 21 35.5 46.0
  Aug 21 33.4 45.1
  Sep 21 33.8 55.8
  Oct 21 35.6 53.4
  Nov 21 29.9 53.1
M-o-M % change    
  Apr 21 -11.4 -4.9
  May 21 5.0 -15.7
  Jun 21 0.6 8.3
  Jul 21 9.4 9.5
  Aug 21 -5.9 -2.1
  Sep 21 1.2 23.8
  Oct 21 5.3 -4.3
  Nov 21 -16.1 -0.5

CMIE STATISTICS
Unemployment Rate (30-DAY MVG. AVG.)
Per cent
8.0 +0.5
Consumer Sentiments Index
Base September-December 2015
68.6 +0.3
Consumer Expectations Index
Base September-December 2015
67.6 0.0
Current Economic Conditions Index
Base September-December 2015
70.1 +0.7
Quarterly CapEx Aggregates
(Rs.trillion) Jun 21 Sep 21 Dec 21 Mar 22
New projects 2.94 3.26 3.53 5.91
Completed projects 0.71 1.28 2.76 1.18
Stalled projects 0.33 0.28 0.06 0.30
Revived projects 1.14 0.39 2.07 0.28
Implementation stalled projects 0.64 0.26 0.65 0.07
Updated on: 26 Jun 2022 3:28PM
Quarterly Financials of Listed Companies
(% change) Jun 21 Sep 21 Dec 21 Mar 22
All listed Companies
 Income 42.3 27.5 23.4 21.6
 Expenses 41.8 26.7 21.3 20.5
 Net profit 140.6 55.3 35.4 32.8
 PAT margin (%) 8.9 9.6 9.0 9.1
 Count of Cos. 4,564 4,690 4,733 4,508
Non-financial Companies
 Income 61.1 35.7 29.1 25.9
 Expenses 62.4 36.0 28.8 26.6
 Net profit 195.2 59.5 19.0 12.9
 PAT margin (%) 8.4 8.8 7.5 7.9
 Net fixed assets 4.9 2.2
 Current assets 10.8 15.3
 Current liabilities 0.8 11.7
 Borrowings 12.1 3.7
 Reserves & surplus 12.4 11.5
 Count of Cos. 3,336 3,387 3,428 3,280
Numbers are net of P&E
Updated on: 26 Jun 2022 3:28PM
Annual Financials of All Companies
(% change) FY20 FY21 FY22
All Companies
 Income 0.6 -1.1 13.6
 Expenses 0.4 -3.4 10.5
 Net profit -4.4 72.2 58.0
 PAT margin (%) 2.0 4.5 10.9
 Assets 9.0 9.7 9.3
 Net worth 4.8 11.7 9.9
 RONW (%) 3.4 6.9 13.5
 Count of Cos. 32,455 29,998 539
Non-financial Companies
 Income -1.2 -2.3 26.3
 Expenses -1.0 -4.4 25.6
 Net profit -20.8 63.5 42.2
 PAT margin (%) 2.2 4.2 13.8
 Net fixed assets 11.2 2.0 -1.9
 Net worth 2.2 10.7 11.2
 RONW (%) 4.7 8.0 22.6
 Debt / Equity (times) 1.2 1.0 0.3
 Interest cover (times) 1.9 2.5 10.3
 Net working capital cycle (days) 81 85 16
 Count of Cos. 25,743 23,675 386
Numbers are net of P&E
Updated on: 20 Jun 2022 11:46AM