Trade deficit declines in December

New Delhi: India’s merchandise trade in December grew marginally by 1% on an annualised basis to $38.45 billion amid global headwinds, including recent disruptions in the Red Sea trade route, the commerce ministry said on Monday.

India’s trade deficit declined as imports fell 4.85% to $58.25 billion compared to $61.22 billion in December 2022, commerce secretary Sunil Barthwal said. “Global trade is facing adverse conditions,” he said. “India in that sense doing well. We are beating the global trend.”

Houthi rebels in Yemen have attacked ship plying on the Red Sea, disrupting trade. Some 80% of India’s merchandise trade with Europe passes via the Red Sea.

The major contributors to export growth in December included engineering goods, iron ore, gems and jewellery, electronic goods and pharmaceuticals, Barthwal said. The three months to March is typically stronger than the preceding three quarters in terms of trade, he added, but much would depend on developments in the Red Sea.

Major shipping lines such as Maersk, MSC and Hapag Lloyd have stopped or temporarily halted Red Sea operations, and about 90% of vessels have been re-routed around the Cape of Good Hope, adding to costs and delays of 14-20 days. This may prompt traders to hold inventory and both exports and imports could be hit in January, a commerce ministry official said, seeking anonymity.

The commerce ministry has formed a strategic group to quickly find solutions for trade disruptions. The group is interacting with traders and an interministerial team comprising officials of external affairs, defence and finance ministries. While new products are being introduced in major markets to boost exports, the government is exploring possibilities of exporting inventories affected due to the turbulent Red Sea route eastward, particularly to Australia, with which India has recently forged a free trade agreement, the official said.

Cumulative goods exports in the first nine months of 2023-24 fell by 5.7% to $317.12 billion from $336.3 billion in the same period the preceding year. Part of this was due to last year’s record performance, the commerce secretary said.

Imports dipped by 7.93% to $505.15 billion between April and December compared to $548.64 billion in the first three quarters of 2022-23, according to official data.

Despite global headwinds such as conflicts in Ukraine and Gaza and the Red Sea trade disruption, India’s first advance estimates of growth released on January 5 projected a higher-than-expected GDP growth of 7.3% in 2023-24. Robust monthly collections of indirect taxes, a weathervane of business activities, breached ₹1.60 lakh crore for the seventh time in 2023-24 in December, with three months still to go in the financial year.

Services exports in December also fell by 10.61% to $27.88 billion compared to $31.19 billion in December 2022, the trade data showed. The data for December are an extrapolation of the previous month’s numbers as the numbers for the services sector are released by the Reserve Bank of India with a lag. Services imports also fell to $13.25 billion in December compared to $15.81 in the same month a year ago.

India’s overall exports in the first nine months of the current financial year fell by 1.87% to $565.04 billion. Imports a contracted sharply by 7.24% to $634.39 billion.

India’s trade deficit in the April-December period improved by 35.87% from $108.13 billion in 2022 to $69.34 billion in 2023. Merchandise trade deficit improved by 11.45% from $212.34 billion in April-December 2022 to $188.02 billion in April-December 2023.

Rising geopolitical uncertainties, logistics challenges, slow global economic recovery and weak demand could adversely affect India’s exports, said Israr Ahmed, president of the Federation of Indian Export Organisations. “The drop in commodities prices from the elevated level in 2022 also contributed to the decline,” he pointed out. “Almost all countries’ exports are exhibiting a declining trend, with many witnessing a double-digit dip.”

“Recent tensions in West Asia, especially the threat for consignments routing through the Red Sea, has further added to woes of the exporting community, as freight rates have gone up to unimaginably high levels, with further burden of various surcharges, pushing Indian exporters to hold back around 25% of the outbound shipments transiting through the Red Sea, which added to the sense of scepticism and nervousness among the businesses and markets across the world,” he added.

The need of the hour is to provide much needed momentum to exports sector through addressing the Red Sea challenges by ensuring availability of marine insurance and bringing down freight charges, Ahmed said.