India's July preliminary trade deficit widens to $31 billion

Tags: Economy/Finance

India's July trade deficit widened to $31.02 billion, from $10.63 billion a year ago, on increased imports of crude oil and coal.

Important facts

• Merchandise exports fell to a five-month low of $35.2 billion in July, while imports fell sequentially to $66 billion, according to data released by the commerce ministry.

• Seven of the top 10 export items witnessed contraction - engineering goods (2.5 per cent), petroleum products (7.1 per cent), gems and jewellery (5.2 per cent), pharmaceuticals (1.4 per cent), readymade garments (0.6 per cent), cotton yarn (28.3 per cent), and plastic (3.4 per cent).

• However, some items showed strong growth - chemicals (7.9 per cent), electronic goods (46.1 per cent), and rice (30.2 per cent).

• Among major import items, gold declined 43.6 per cent to $2.4 billion after the Center raised import duty on the metal last month.

• However, imports of non-oil and non-gems and jewellery products increased by 42.9 per cent due to improved domestic economic activity as well as increased price pressures.

Reason of trade deficit and its effect

• Rising interest rates and the closure of economic stimulus packages are likely to have a negative impact on trading volumes in the remaining months of 2022.

• Volatility in commodity prices and geopolitical factors will also continue to make business development uncertain.

• The conflict in Ukraine is putting further pressure on international prices of energy and primary goods.

• In the short term, due to stagnant global demand for food and energy products, an increase in food and energy prices is likely to lead to higher trade values and a slight decrease in trade volume.

• The current account deficit is likely to have crossed $30 billion in Q1 FY23. 

Can India compensate for the trade deficit?

• The recently signed trade deals with UAE and Australia will boost exports.

• These two countries can export $ 15-16 billion.

• The trade arrangement announced by the Reserve Bank of India will boost trade with Russia and Sri Lanka.

• There are huge opportunities in Russian tea, telecom, pharmaceutical products, leather etc.

• Exports could exceed $500 billion in this fiscal year, as restrictions on exports of wheat, iron and steel, and petroleum products have curbed growth in shipments.

What is trade deficit?

• A trade deficit occurs when a country's imports exceed its exports.

• It is also known as negative balance of trade.

• A trade deficit is calculated by subtracting the total value of a country's exports from the total value of its imports.