India’s merchandise trade deficit eased to USD 74.5 billion during October-December 2022. A sharp drop in imports compared to exports aided in shrinking the ballooning trade deficit. The deficit had hit an all-time high of USD 81.7 billion in the preceding quarter. Even though deficit has eased, it is still the second highest quarterly deficit ever.

India’s merchandise exports had peaked at USD 121 billion in the June quarter. In the September quarter, they declined to USD 110.8 billion and further to USD 100.9 billion in the December quarter.

On a year-on-year basis, growth in exports decelerated sharply to less than 10 per cent in the September 2022 quarter from the double digit increase between the quarters ended March 2021 and June 2022. Exports declined by 5.5 per cent in the December quarter.

Demand for India’s exports was slowing on recession fears in the US and advanced economies. Strict quarantine restrictions in China had also adversely hit demand for India’s exports. To add to this, global commodity prices have come off from their June peak. This has led to a fall in unit realisations for India’s exports.

As a result, cumulative growth in exports decelerated sharply to 8.8 per cent during April-December 2022. Exports had recorded a huge expansion of 51.8 per cent during the corresponding period of 2021.

As per media reports, government officials now expect exports to reach around USD 440-450 billion during 2022-23, as against earlier projections of USD 470-480 billion. This implies a 6-7 per cent growth in exports. We expect the year to end with exports of USD 434 billion.

POL exports dropped to USD 19.3 billion in the December 2022 quarter from the record high exports of USD 26.9 billion in the June quarter, on lower unit realisations. Recession fears had dragged down global crude oil prices by more than 22 per cent in the December quarter from the recent peak in the June quarter. As a result, unit realisation from POL exports dropped by around 11 per cent compared to the June quarter, to USD 973 per tonne in the December quarter.

Non-POL exports declined to USD 81.7 billion in the December quarter from USD 94 billion in the June quarter.

Of the major non-POL exports, exports of gems and jewellery dropped to USD 8.4 billion in the December quarter from over USD 10 billion in the preceding quarters. This was because average monthly exports fell to USD 2.5 billion during November-December from USD 3.4 billion between April to October. This sharp slowdown was across most major markets. But it was more pronounced in exports to USA, which is the largest market for India’s gems and jewellery exports.

Exports of readymade garments were down by 25 per cent in the December quarter from the June 2022 quarter. Similarly, textiles exports are also estimated to have declined by nearly 25 per cent and plastic & linoleum exports by 12 per cent.

Exports of electronic goods bucked the general trend of slowing exports. Exports surged to USD 6.7 billion in the December quarter from USD 5.1 billion in the June quarter. Exports were valued at USD 16.7 billion during April-December 2022. Smartphone exports are driving overall electronic goods exports on the back of production-linked incentives offered by the government. The government has reportedly estimated smartphone exports of USD 9 billion during 2022-23, higher than the USD 5.8 billion exported during the preceding year.

India’s merchandise imports declined to USD 175 billion in the December quarter from a record high of USD 192.5 billion in the preceding quarter. The fall was more on account of a decline in non-POL imports.

POL imports remained high in the range of USD 53-56 billion in the first three quarters of 2022-23. Indian basket of crude oil declined by over 20 per cent in the December quarter as compared to the June quarter. But unit price of POL imports declined by a mere six per cent in the same period. At the same time, import quantity witnessed a modest increase.

Gold and silver imports eased to USD 9 billion in the December quarter from USD 12.6 billion in the preceding quarter. In December 2022, gold imports declined to USD 1.2 billion from average monthly imports of USD 3.4 billion between April to November. Imports reportedly dropped to 20 tonnes in December 2022 from average imports of 72 tonnes in the preceding seven months. Media reports have attributed the steep drop in gold demand to a rally in domestic gold prices. Silver imports were also down to USD 0.9 billion in October-December compared to USD 2.9 billion in the preceding quarter.

Imports of non-POL, non-gold & silver imports decelerated sharply to USD 112.8 billion in the December 2022 quarter from the record high of USD 123 billion in the September quarter. This was because imports of electronic goods, pearls, precious & semi-precious stones, coal, coke & briquettes, chemical material & products and vegetables oils were lower in the December quarter compared to the September quarter. Imports of coal, coke & briquettes dropped to USD 10.2 billion in the December quarter from USD 13.2 billion in the September quarter. Correction in prices and slowing demand was leading to a fall in coal imports. Imports of pearls, precious & semi-precious stones dropped to USD 7 billion from USD 8.3 billion. Similarly, electronic goods imports declined to USD 18.8 billion from USD 21.8 billion.

As against this, imports of fertilisers, machine tools, iron & steel remained firm or increased in the December quarter compared to the September quarter.

Imports are expected to slow further to USD 164 billion in the March 2023 quarter from USD 175 billion in the preceding quarter. As a result, trade deficit is expected to shrink to USD 62.5 billion in the last quarter of 2022-23. Despite the fall, trade deficit will be at a record high of USD 282.6 billion during 2022-23.