India’s merchandise exports fell by 1.7% in January, contracting for the sixth consecutive month, while imports fell for the eighth month in a row by 0.75%, leading to a trade deficit of $15 billion, according to commerce ministry figures released on Friday.
Outbreak of coronavirus amid trade tensions is feared to put further downward pressure on world economy, which could impact demand for Indian goods. The World Trade Organisation (WTO) last year downgraded its world merchandise trade volumes growth for 2020 to 2.7% from 3% earlier. WTO has cautioned that downside risks remain high and that the 2020 projection will depend on a return to more normal trade relations.
Aditi Nayar, principal economist at ICRA Ltd said increase in the January merchandise trade deficit to a seven month high has primarily been led by a sharp rise in crude oil imports (15.3%), which would subside in February following considerable correction in crude oil prices. “The impact and duration of the coronavirus threat on manufacturing supply chains, tourism and trade poses a risk to the level of exports and imports of goods and services in the ongoing quarter. Regardless, the decline in commodity prices will cushion the impact on the current account deficit, which is now expected to print around 1% of GDP in FY2020,” she added.
During the first ten months of the fiscal (April-January), exports have contracted 1.9%, while imports shrank 8.1% leading to a trade deficit of $133.3 billion.
A weakening external sector will put additional pressure on India’s fledgling economic growth, which is estimated to decelerate to an 11 year low at 5% in 2019-20.
Out of the 30 major items each in India’s export and import baskets, 21 export items and 17 imported goods witnessed contraction. Exports of ready-made garment (-5%), gems and jewellery (-11.6%), engineering (-4%) fell during the month while those of pharmaceuticals (12.4%), electronics (32.8%), petroleum (3%), chemicals 2.5%) made a recovery.
Among major importing items, coal fell -24.4%, chemicals -12%, gold -31.5%, and electronic goods shrank by -4.7%. However, signaling a recovery in domestic industrial activity, machinery (4%) and transport equipment (2%) imports recorded positive growth.