India’s shipping deals contracted for the second consecutive month in November after recording positive growth only for a month in September as the second wave of the coronavirus pandemic hit consumer demand in India’s largest markets in Europe.
Exports fell 8.7% while imports declined 13.3%, resulting in a 10-month high trade deficit of $ 9.9 billion, according to revised trade data released by the trade ministry.
China’s exports, by contrast, grew 21.1% in November, the fastest growth since February 2018, while imports grew 4.5%, causing a record trade surplus of $ 75.4 billion.
Major Indian export goods that have dragged growth include petroleum products (-59.7%), engineering goods (-8.1%), chemicals (-8.1%), ready-made garments (-1.2%) while medicines (11.1%), gems and jewelry (4.1%), electronic goods (1%) recorded positive growth. Items that boosted imports and trade deficit include non-ferrous metals (9.1%), chemicals (36.1%), electronic goods (12.3%), fertilizers (29.3%) and gold (2.7%). %).
Aditi Nayar, chief economist at ICRA Ltd, said the slide in off-oil export growth was driven by renewed constraints on trading partners that outweighed the optimism regarding early availability of Covid-19 vaccines. “This trend could continue in the winter months before an upward trend takes root in Q4 FY21. ICRA expects the size of the trade deficit to almost double in Q3 FY21 relative to Q2 FY21, with imports recovered thanks to improved economic performance, rising commodity prices and rising demand for gold during the festive and wedding season, ”she added.
Nayar added that she expects current account surplus to decline substantially in Q3 FY2021 and Q4 FY2021 from its $ 19.8-billion level in Q2 as the domestic recovery strengthens. “Overall ICRA expects India’s current account to post a considerable surplus of $ 35-40 billion or about 1.5% of GDP in FY21, as opposed to the deficit of $ 25 billion or 0.9% of GDP in FY20,” she added.
India’s commodity trade weakened even before the power-19 pandemic hit the economy and external demand. In 15 of the past 17 months since June 2019, the country’s exports have been negative. However, since March of this year, both exports and imports have started to decline in high double-digit figures, even temporarily leading to a trade surplus in June for the first time in 18 years.
Data compiled by the World Trade Organization (WTO) showed that global trade declined by 21% in the June quarter. The WTO now projects that world trade volume will decline by 9.2% in 2020, followed by a 7.2% increase in 2021. In April, the trade body predicted that global trade will fall from 13% to 32% in 2020 due to the pandemic.
The rate of contraction in the Indian economy slowed in September quarter to 7.5% from an all-time high of 23.9% contraction in June quarter. Since then many economic agencies have revised up their growth forecasts for India. The Asian Development Bank has projected that the Indian economy will contract at a slower pace of 8% against its earlier estimate of 9% in FY21 due to a faster recovery in Asia’s third largest economy. The Reserve Bank of India (RBI) earlier this month projected that the Indian economy will contract 7.5% in FY21, a shallower than 9.5% contraction it projected just two months ago, behind a lot of lead indicators, suggesting a sustained economic recovery.