Record low trade deficit

by Manasi Swamy

India’s merchandise trade deficit shrank to USD 24 billion during the first half of 2020-21. The deficit was 72.9 per cent lower than its level in the corresponding period a year ago. In fact, it was at its lowest in the last 15 years. India has been running exceptionally low trade deficits and even an occasional surplus during a period of shrinking trade.

Trade deficit shrank during April-September 2020 even as both exports and imports contracted. Exports earnings declined by 21.3 per cent to Rs.125.3 billion. These were hit by two reasons. Firstly, overseas demand for goods, not only from India, fell as countries across-the-globe observed either full or partial lockdown to prevent the spread of Covid-19. Secondly, domestic supplies were constrained by the lockdown imposed in India.

Imports shrank by an even steeper 39.8 per cent to Rs.149.5 billion during April-September 2020. The country’s import bill more-than-halved to Rs.32 billion due to reduced demand and slump in international oil prices. Gold imports also tanked by 57 per cent y-o-y to Rs.6.8 billion as soaring prices discouraged Indians from purchasing the yellow metal. What made the maximum contribution to the reduction in trade deficit is the steep fall in non-oil, non-gold imports. These fell to Rs.110 billion during April-September 2020 from Rs.165.1 billion a year-ago. Imports fell in response to the dramatic contraction in aggregate demand in India.

India witnessed an improvement in its trade balance against all its major trading partners, but for UAE.

The biggest gains came from China, which is the largest source for India’s imports and the second largest destination for its exports. India’s trade deficit with China shrank to USD 16.7 billion during April-September 2020 from USD 27.9 billion a year-ago. China is the only country among India’s top 10 export destinations to which exports grew by 26.2 per cent. It grew to USD 10.6 billion. This was driven by a growth in exports of ores & minerals, drugs & pharmaceuticals, iron & steel, ferrous & non-ferrous metals, machine tools, paper/wood products, plastic & linoleum products. Except for April 2020, exports to China penciled a y-o-y growth in every month till September 2020. China recovered swiftly from the pandemic and was the only country among G-20 to report a y-o-y expansion in GDP during the June 2020 quarter. India’s imports from China fell by 24.7 per cent to USD 27.3 billion during the first half of the current fiscal. The fall was seen across most items imported from China.

India’s trade deficit with Hong Kong did shrink during April-September 2020, but only marginally to USD 2.5 billion from USD 2.9 billion during the corresponding period of 2019. Trade deficit with Southeast Asian Countries Singapore and Indonesia also reduced to USD 349 million and USD 3.1 billion, respectively, from USD 2.1 billion and USD 5.1 billion during April-September 2020. India’s trade with Malaysia even turned into a surplus of USD 120 million from a deficit of USD 2.4 billion in the first half of last year. Trade deficit with South Korea more-than-halved to USD 2.7 billion from USD 6.1 billion during the same period.

Among western countries, India enjoys a trade surplus with the US and the UK. Its trade surplus with the US expanded to USD 10.2 billion during April-September 2020 from US 7.2 billion a year ago and with the UK to USD 1.3 billion from USD 826 million. Both countries went heavy on drugs & pharmaceuticals imports from India in order to battle the Covid-19 pandemic. US President Donald Trump threatened the Indian government of retaliation had the country refused to lift the ban imposed on Hydroxychloroquine exports. India’s drug exports to the US grew by 15.5 per cent to USD 4 billion and to the UK by 17.2 per cent to USD 328 million during April-September 2020. This arrested the fall in India’s total exports to these countries much below the level of fall in their imports from India. India’s trade deficit with Germany too more-than-halved to USD 1.3 billion during April-September 2020 from USD 2.8 billion in the corresponding period of 2019.

Among gulf countries, India’s trade deficit with Saudi Arabia shrunk dramatically to USD 3.8 billion during the first half of 2020-21 from USD 10.9 billion last year. India’s imports from Saudi Arabia plummeted by 42.1 per cent to USD 8.4 billion. Over 80 per cent of India’s imports from Saudi Arabia comprise of oil & petroleum which crashed by 55.9 per cent due to weak domestic demand and slump in international oil prices. Exports to Saudi Arabia, on the other hand, fell by a much lower 4.5 per cent to USD 2.6 billion.

UAE was the only among India’ major trading partner against which the country’s trade balance deteriorated during April-September 2020. From a surplus of USD 510 million during April-September 2019, the trade slipped into a deficit of USD 1.6 billion. Imports from Saudi Arabia declined by 42.1 per cent to USD 8.4 billion, with major imported commodities oil & petroleum, gold and pearls, precious stones reporting a 36.4 per cent, 31.9 per cent and 59.5 per cent contraction, respectively. Exports to UAE, however, took a more severe beating of the order of 55 per cent. While the fall was across-the-board, it is the exports of jewellery which had the highest contribution to it. Jewellery exports contracted to USD 266.3 million from USD 4.3 billion during April-September 2020. Jewellery traditionally accounts for nearly a third of India’s exports to UAE, which dropped to a meagre four per cent during April-September 2020.

The reduced trade deficit of the first half of 2019-20 is a reflection of the exceptional times when domestic and global demand has shrunk. It may be difficult to sustain these levels when domestic demand revives.

Unemployment Rate (30-DAY MVG. AVG.)
Per cent
7.9 -3.6
Consumer Sentiments Index
Base September-December 2015
53.2 0.0
Consumer Expectations Index
Base September-December 2015
54.8 0.0
Current Economic Conditions Index
Base September-December 2015
50.7 0.0
Quarterly CapEx Aggregates
(Rs.trillion) Mar 20 Jun 20 Sep 20 Dec 20
New projects 3.80 0.83 1.05 0.86
Completed projects 1.76 0.25 0.72 0.49
Stalled projects 0.73 0.11 0.08 0.30
Revived projects 0.42 0.68 0.36 0.08
Implementation stalled projects 10.18 0.09 0.07 0.12
Updated on: 16 Jan 2021 8:28PM
Quarterly Financials of Listed Companies
(% change) Mar 20 Jun 20 Sep 20 Dec 20
All listed Companies
 Income -5.0 -27.6 -6.2 6.7
 Expenses -1.9 -27.9 -10.1 2.7
 Net profit -48.9 -40.2 45.2 26.9
 PAT margin (%) 2.3 5.3 8.3 21.4
 Count of Cos. 4,355 4,347 4,310 64
Non-financial Companies
 Income -9.0 -37.4 -10.4 7.0
 Expenses -4.9 -37.6 -14.0 2.9
 Net profit -50.1 -55.8 29.9 26.9
 PAT margin (%) 3.2 4.5 8.1 21.7
 Net fixed assets 13.3 5.9
 Current assets 3.6 0.8
 Current liabilities 6.2 -2.8
 Borrowings 15.9 8.1
 Reserves & surplus 1.3 4.5
 Count of Cos. 3,239 3,235 3,213 44
Numbers are net of P&E
Updated on: 16 Jan 2021 8:28PM
Annual Financials of All Companies
(% change) FY18 FY19 FY20
All Companies
 Income 8.4 13.5 0.2
 Expenses 9.9 13.8 0.5
 Net profit -41.0 17.9 -11.9
 PAT margin (%) 2.0 2.2 3.9
 Assets 10.9 9.5 9.2
 Net worth 7.4 8.6 4.8
 RONW (%) 3.4 4.0 5.7
 Count of Cos. 29,264 28,548 9,649
Non-financial Companies
 Income 8.6 14.1 -2.6
 Expenses 8.8 14.3 -1.8
 Net profit -9.5 22.0 -23.7
 PAT margin (%) 2.7 3.0 4.1
 Net fixed assets 7.2 5.4 13.0
 Net worth 6.1 8.3 2.1
 RONW (%) 5.6 6.7 7.2
 Debt / Equity (times) 1.0 1.0 0.8
 Interest cover (times) 2.1 2.3 2.6
 Net working capital cycle (days) 77 70 60
 Count of Cos. 23,680 23,061 7,171
Numbers are net of P&E
Updated on: 14 Jan 2021 10:28AM