Jan-22 trade deficit tapers to $17.42 billion on lower imports

The month of Jan-22 was the 11th successive month when merchandise exports stayed above $30 billion. The Jan-22 merchandise export figure of $34.50 billion is lower than the Dec-21 export figure but higher than the FY22 monthly median of $30.50 billion.

After a sharp sequential revival in Dec-21, exports again fell sequentially in the month of Jan-22. While exports were lower on a sequential basis, they were still substantially higher on a yoy basis as well as on a 2-year basis compared to the pre-COVID levels.

Overall trade (aggregate of exports and imports) tapered in Jan-22 to $86.43 billion compared to a record level of $97.29 billion in Dec-21. Total trade is the best barometer of MSME orders, customs revenues and job creation. In the last five months, the total trade has averaged above $89 billion, but merchandise deficit has also averaged above $20 billion.

A clearer picture emerges when you look at trade numbers on a sequential basis. Compared to Dec-21, exports were down -8.75% while the imports were also down -12.69% in Jan-22. This could be partly attributed to the constraints imposed by the Omicron variant. However, if you compare with pre-COVID levels of Jan-20, merchandise exports were up 33.45% while merchandise imports were up 26.19%. Even as constraints like shortage of containers persist, the growth over pre-COVID levels is a source of comfort for trade performance.

Jan-22 exports are still much higher on yoy basis

Exports at $34.50 billion in Jan-22 were up 25.28% yoy but down -8.75% sequentially. This can be partially attributed to the lag effect on output of Omicron variant. Exports were up 33.45% over Jan-20, indicating that exports are boosting growth over pre-COVID levels.

There were several star export performers in Jan-22. Exports of Coffee (+101.22%), Petroleum Products (+95.23%), Cotton Yarn / handlooms (+42.40%), Plastic & Linoleum (+32.16%), Marine Products (+29.51%), Cereals (+27.50%), Chemicals (+25.84%), Engineering Goods (+24.11%), Leather Products (+20.82%) and Meat / Dairy (+16.38%) were among the key growth drivers for exports in Jan-22.

However, there were some export laggards too, like Iron Ore (-56.51%), Oil Meals (-51.79%), oilseeds (-21.40%), Cashew (-19.85%) Tea (-12.54%) and Spices (-4.61%). Non-petroleum and non-jewellery exports in Jan-22 stood at $27.10 billion against $22.56 billion in Jan-21. Cumulative value of exports for Apr-Jan were up 46.73% yoy at $335.88 bn.

Good news on imports is that gold imports receded

Merchandise imports for Jan-22 stood at $51.93 billion, up 41.15% yoy. Imports were down -12.69% sequentially. Crude oil imports at $11.96 billion in Jan-22 showed sequential fall on lower oil imports but were up 26.9% yoy. However, the Ukrainian crisis promises to be a major overhang for oil prices, even as the Iran deal could soothe oil a bit.

The big import surge in Jan-22 came from Silver (+6,425%), Sulphur (+261%), Fertilizers (167%), Newsprint (112%) and pulp (108%). The major items that showed lower imports on a yoy basis for Jan-22 were Gold (-40.52%), Cotton (-32.84%), Transport Equipment (-26.33%) and fruits & vegetables(-12.25%). The big positive takeaway was the -40.52% fall in gold imports at $2.40 billion compared to $4.04 billion in Jan-21 and a whopping $4.73 billion in Dec-21. Cumulative value of imports for Apr-Jan period stood at $495.75 billion.

Combined deficit for FY22 widens further in Jan-22

For FY22 (Apr-Jan), combined deficit of merchandise and services trade was $(-71.20) billion. The rise in overall deficit has been tempered by lower merchandise trade deficit and a better performance on service exports. The overall combined deficit widened by $3.14 billion from $(-68.06) billion to $(-71.20) billion on sequential basis.

Particulars	Exports FY22 ($ bn)	Imports FY22 ($ bn)	Surplus / Deficit ($ bn)
Merchandise trade	$335.88 bn	$495.75 bn	$(-159.87) bn
Services Trade #	$209.83 bn	$121.16 bn	$+88.67 bn
Overall Trade	$545.71 bn	$616.91 bn	$(-71.20) bn

Data Source: DGFT (# - DGFT estimates due to 1-month lag in RBI reporting)

India had closed FY21 with combined deficit of -$12.75 billion. For FY22 (Apr-Jan), combined deficit at -71.20 billion, is already 5.58 times the FY21 figure. It will certainly widen further in FY22, with 2 more months still to go. The good news is that the pace of growth in combined deficit has slackened in January and that should hopefully keep the current deficit figure for the last quarter under control.
Jan-22 was more of slowdown blues

The trade deficit and the overall deficit pace slackened in Jan-22, but that is more because the imports slackened in Jan-22 due to lower crude and gold imports. With the festive season concluded, gold contributed a good bit to the lower trade deficit in the month of Jan-22. However, there are 2 areas of concern.

• Crude still remains the big concern for India. June saw overall contraction in demand due to the lag effect of the Omicron variant. However, that is unlikely to be the case in the coming months with crude already hovering around $96/bbl and the geopolitical tensions on the Russia-Ukraine border worsening.
• Export growth has been curtailed by practical problems like the availability of containers, trade disruption in China, volatile currency equations etc. Most of these problems still persist in some form or other and that could be an overhang on export growth. Also, the rupee is much stronger and that is not helping exports either.

There are several initiatives like the PLI scheme, green hydrogen scheme which could all become valuable export triggers. However, most of these triggers are likely to pan out only in the medium term. Short term trade still remains the challenge.