Trade marked, with fingers crossed

Merchandise exports in July shrank marginally from the same month a year ago as India’s main trading partners, the US and the EU, saw their economies cool down and the effects of domestic restrictions on select items were felt. Seven in 10 of the top export categories posted declines during the month. But GoI hopes to meet a $500 billion target for 2022-23 with bilateral free trade agreements (FTAs), such as the one with the UAE, which have come into play, or are about to, like those with Britain and Australia. India’s trade performance in 2021-22 was aided in large measure by recovery in advanced economies. The next leg of growth in a slowing global economy is expected to come through improved access to a broader set of markets and production-linked incentives (PLIs) to manufacturing: electronic exports continue to power ahead.

Imports in July kept up the tempo, although there was a slight easing from the previous month as commodity prices came off recent highs with synchronised monetary tightening across the world. Growth in crude oil and coal imports during the month pulled down the average rates for April-July, and gold imports declined with the imposition of a duty. Machinery imports – a marker of India’s growth prospects – remained buoyant, as did edible oils, where the scope for import substitution is limited. Filtering out crude oil and gold – admittedly, a big filtration – imports during July grew faster than the average for the first four months of 2022-23.

The trade deficit in July at $31.02 billion is almost three times the $10.63 billion it was a year ago, and at $100.01 billion so far in 2022-23, it is over twice the $42.07 billion clocked up in April-July 2021-22. Capital flight since last year is exerting pressure on the rupee and a widening current account deficit (CAD) limits the scope for managing the currency’s descent. As foreign exchange reserves dwindle – these are now below the 11 months of import cover considered safe – the option to restrict imported energy inflation may become too costly.

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