Feb-22 trade deficit widens to $20.88 billion on flat exports

16 Mar 2022 , 09:28 AM

The month of Feb-22 marked the 12th successive month the merchandise exports stayed above $30 billion. The Feb-22 merchandise export figure of $34.57 billion is flat compared to the Jan-22 export figure but higher than the FY22 monthly average of $33.68 billion.

After a sharp sequential fall in exports in Jan-22, the exports were flat sequentially in Feb-22. However, if you take a longer term perspective, exports were still substantially higher on a yoy basis as well as on a 2-year basis compared to pre-COVID levels.

Overall trade (aggregate of exports and imports) increased in Feb-22 to $90.02 billion compared to $86.43 billion in Jan-22 but lower than the record level of $97.29 billion in Dec-21. For FY22, India’s total trade is expected to cross $1 trillion for the first time in history while exports are likely to cross the $400 billion mark. But, more about that later.

Data Source: DGFT

A clearer picture emerges when you look at trade numbers on a sequential basis. Compared to Jan-22, exports were up 0.20% while the imports were also up 6.78% in Feb-22. While the Omicron issue has been overcome, there was some effect of the Ukraine crisis. However, if you compare with pre-COVID levels of Feb-20, merchandise exports were up 24.60% while merchandise imports were up 46.28%. Even as constraints like shortage of containers persist, the growth over pre-COVID levels is a source of comfort for trade performance.

Feb-22 exports were sharply higher on yoy basis

Exports at $34.57 billion in Feb-22 were up 25.10% yoy but up by just 0.20% sequentially. This can be partially attributed to the lag effect on output of Omicron variant and some early headwinds from the Ukraine war and resultant embargos and sanctions. Exports were up 24.60% over Feb-20, indicating that exports are boosting growth over pre-COVID levels.

There were several star export performers in Feb-22. Exports of Petroleum Products (+88.14%), electronic goods (+34.54%), Cotton Yarn / handlooms (+33.01%), Engineering Goods (+32.04%), Leather Products (+30.39%), Coffee (+29.64%), Plastics & Linoleum (+26.46%), Chemicals (+25.38%), Cereals (+20.73%) and Textiles (+18.66%) were among the key growth drivers for exports in Feb-22.

However, there were some export laggards too, like Oil Meals (-69.47%), Iron Ore (-56.32%), Spices (-16.54%), Handicrafts (-10.26%), Cashew (-9.96%) and Oilseeds (-4.36%). Non-petroleum and non-jewellery exports in Feb-22 stood at $26.75 billion against $22.48 billion in Feb-21. Cumulative value of exports for Apr-Feb were up 46.09% yoy at $374.81 bn.

Gold and oil pose a question mark over imports

Merchandise imports for Feb-22 stood at $55.45 billion, up 36.07% yoy. Imports were up 6.78% sequentially. Crude oil imports at $15.28 billion in Feb-22 showed a sharp sequential spike on rising crude prices. It was also up 69.2% yoy. It was a combination of the Ukraine crisis and the sanctions on Russia, since Russia accounts for 8% of the global oil supply and it remains the biggest contributor. However, for the Russian sanctions to be successful, it would have to extend to China and EU also, which looks largely unlikely.

The big import surge in Feb-22 came from Silver (+5,307%), Fertilizers (+644%), Sulphur (355%), Pulses (168%), Newsprint (159%), Coke/Coal/Briquettes (117%), Ores & Minerals (103%) and project goods (83%). The major items that showed lower imports on a yoy basis for Feb-22 were Transport Equipment (-35.21%), Gold (-9.65%) and fruits and vegetables (-3.50%). While gold imports were marginally lower on yoy basis, on a sequential basis, the gold imports doubled from $2.40 billion to $4.80 billion. Cumulative value of imports for Apr-Feb period stood at $550.56 billion.

Combined deficit for FY22 widens sharply in Feb-22

For FY22 (Apr-Feb), combined deficit of merchandise and services trade was $(-81.24) billion. After a subdued deficit growth in Jan-22, the Feb-22 surge in overall deficit is sharply  higher on the back of flat exports and  higher imports. The overall combined deficit widened by $10.04 billion from $(-71.20) billion to $(-81.24) billion on sequential basis.

Particulars	Exports FY22 ($ bn)	Imports FY22 ($ bn)	Surplus / Deficit ($ bn)
Merchandise trade	$374.81 bn	$550.56 bn	$(-175.75) bn
Services Trade #	$226.96 bn	$132.45 bn	$+94.51 bn
Overall Trade	$601.77 bn	$693.01 bn	$(-81.24) 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-Feb), combined deficit at -81.24 billion, is already 6.34 times the FY21 figure. With one more month to go and a spike in imports likely, this overall deficit will certainly widen further in FY22. This surge in net overall deficit is likely to put pressure on the current account deficit for the March 2022 quarter.

Russia-Ukraine trade impact remains the X-factor

The trade deficit and the overall deficit pace sharpened in Feb-22 and that was hardly surprising due to the spike in crude prices and the war situation. The government has seen a spike in the imports of gold, crude oil, fertilizers and edible oils. It is surprising that despite the festive season getting over, demand for gold remains robust. It looks more like hoarding demand for gold in these uncertain times. Broadly, there are 2 areas of concern.

• Crude still remains the big concern for India. Crude touched a high of $139/bbl and has tapered to below $110/bbl. However, these equations can change at the drop of a hat. India’s trade with Russia and Ukraine is $10 billion annually. While it will not impact the overall trade, it is likely to create logistic problems for the smooth flow of trade.
• Export growth has been curtailed by practical problems like availability of containers, trade disruption in China, volatile currency equations, embargo on Black Sea vessels, longer turnaround time etc. Most of these problems still persist in some form or other and the war situation in Russia is only going to worsen these risks.

For now, the Ministry of Commerce has reasons to celebrate. India is finally likely to break the barrier of $1 trillion total trade (imports plus exports) for the first time in FY22. Total exports are expected to cross $400 million for the first time. This is when momentum holds the key. The onus is on the government to set the ball rolling to boost trade to higher levels.