India’s May merchandise trade deficit widens to $23.8 billion, a seven-month high

India’s merchandise trade deficit widened to a seven-month high in May, driven largely by a surge in imports, according to official data released by the commerce ministry Friday. 

The merchandise trade deficit stood at $23.78 billion in May, up from $19.1 billion in April and $22.53 billion in a year ago. The May figure fell short of economists' expectations, which had predicted a deficit of $19.5 billion, according to a Reuters poll.

Rising imports and exports

Merchandise exports increased to $38.13 billion in May, up from $34.99 billion in April and $34.95 billion in May 2023. Imports, however, saw a sharper rise, reaching $61.91 billion in May, up from $54.09 billion in the previous month and $57.48 billion in May 2023.

Gold imports, a significant part of India's import basket, rose to $3.33 billion in May from $3.11 billion in April. 

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"Overall exports have grown by double digits, which is a big thing for us. If you look at merchandise, it has grown by 9.1% (annually). So, this has been excellent for us in terms of our export growth," said Sunil Barthwal, secretary, commerce ministry.

Barthwal added that with inflationary pressures easing in advanced economies, purchasing power is expected to rise in the coming quarters, boosting demand for Indian goods and services. "I am very happy to say that things are looking better and looking optimistic," he noted.

Despite this, Indian exports have been affected by a slowdown in global growth. The tightening of interest rates due to persistent inflation, particularly in Western economies, has slowed business, investment, and trade. Geopolitical challenges, including conflicts in West Asia and Ukraine, as well as the Red Sea crisis, have also impacted global trade.

Sectoral performance and services trade

During May, services exports stood at $30.16 billion, up from $29.57 billion in April and $26.99 billion in May of the previous year. Services imports rose to $17.28 billion from $16.97 billion in April and $15.88 billion in May 2023. 

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Total trade deficit, including merchandise and services, was $10.90 billion in May, down from $11.41 billion a year ago.

"Merchandised exports during April exhibited 3% growth while the exports during May 2024 rose to 9.1% . This is remarkable performance looking into global headwinds due to geo-political uncertainty, Red Sea crisis, rising inflation and high interest rates globally," said Ajay Sahai, DG & CEO, Federation of Indian Export Organisations.

The healthy growth, particularly about 10% in apparel, 21% in handicrafts, and 17.5% in carpets, is a good sign as labour-intensive sectors have struggled in exports for some time, Sahai said.

"The data shows that exports in all our top ten markets (US,UAE, Netherland, UK, China, Singapore, Saudi Arabia, Bangladesh, Germany, France) was positive and many of them recorded a healthy double digit growth, which shows that advance economies are recovering," he added.

The main drivers of merchandise export growth included petroleum products, engineering goods, electronic goods, drugs and pharmaceuticals, textiles, and plastic and linoleum. 

According to official data, petroleum products exports increased by 15.75% annually to $6.78 billion in May 2024, engineering goods exports rose by 7.39% to $9.99 billion, electronic goods exports surged by 22.97% to $2.97 billion, and drugs and pharmaceuticals exports grew by 10.45% to $2.30 billion.

However, exports of spices, gems and jewellery, and marine products declined during the month. 

There was an increase in the import of petroleum and crude products, transport equipment, electronic goods, vegetable oil, and pulses.

"Global commodity prices, including those for the Indian basket of crude oil, have also retreated on a month-on-month basis in June 2024 so far. This would help contain the uptick in the year-on-year WPI inflation print in the month, countering the adverse base," rating agency Icra Ltd said in a statement. "Overall, Icra expects the headline WPI inflation to inch up modestly to about 3.0% in June 2024 (-4.2% in June 2023)," the agency added.

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