The larger message from July trade numbers
- India’s trade deficit jumped to an all-time high of $31 billion in July, significantly higher than the $26.2 billion number for June. What is the larger takeaway of this number?
India’s trade deficit jumped to an all-time high of $31 billion in July, significantly higher than the $26.2 billion number for June. What is the larger takeaway of this number? There are two answers to this question, both of which are relevant as far as the macro economy is concerned. The recent surge in the trade deficit is a result of moderation in exports and a jump in imports. Given the fact that the global economy, especially that of advanced economies, is expected to slow down, India’s export earnings will continue to face headwinds. The import outlook, given the primacy of crude oil imports, will depend on global energy prices. While prices have come down compared to their recent peaks – both Brent and WTI crude were trading below $100 per barrel on August 2 – they still continue to be higher than what is comfortable for the Indian economy. All of this means that trade will continue to generate headwinds for economic growth in India.
This general outlook notwithstanding, it is entirely possible that the July trade deficit peak could be a one-off. The month saw an abnormal surge in oil trade deficit, which increased from $8.8 billion in June to $17.2 billion in July. This could be a result of lower exports due to the government’s export duties and inventory rebuilding due to the fall in prices. The export duty was reduced on July 20. Similarly, the coal import bill is expected to come down as the monsoon’s interruption to domestic production wanes and import requirements fall. Still, with India’s foreign exchange reserves at a comfortable level, policymakers would do well to obsess less about the trade deficit in the medium-term and focus on measures that boost domestic consumption.