COVID-19 Main factor behind lowest trade deficit in 5 years: rating agency


Imports gradually normalized with non-gross and non-gold imports, Acuite Ratings said

Acuite Ratings and Research said the release of trade data for March confirms what was already visible before – a sharp reduction in the merchandise trade deficit. India had a trade deficit of just $ 98.6 billion in FY21, the lowest in five years and almost 50 percent below levels seen in FY19. Clearly, Acuite said, the economic turmoil along with significantly lower crude oil prices and strength in commodity exports have contributed to such a reduction in the FY21 deficit.

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With net trade in services broadly stable at $ 86 billion from $ 83 billion in FY20, the consolidated trade deficit in goods and services fell from $ 70.2 billion to $ 12.7 billion.

However, FY21 was an aberration and the increasing normalization and recovery of the economy from the second half of FY21 led the monthly merchandise trade deficit to gradually converge to the median levels of 13-15. billion dollars observed in fiscal year 19-20. What has clearly contributed to normalization is the steady resumption of gold imports since December 2020, reaching $ 8.49 billion in March 2021.

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Notwithstanding the strong base effect due to the lockdown in March 2020, the 60.3% growth in overall exports in March 2021 was much more widespread than in previous months with a healthy recovery in the petroleum products and gemstones sector and jewelry apart from regular shipments of engineering products, pharmaceuticals, chemicals and commodities like rice and iron ore.

On the flip side, Acuite said, imports have gradually normalized with non-gross and non-gold imports (taking into account the strong surge in gold imports) also broadly widespread and up 47.3% in March 2021 on an annual basis.

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What is encouraging to note is the strong growth of 60.1 percent in imports of capital goods, which reflects a potential recovery in capital spending, although its sustainability at a sequential level must be seen.