Trade shocker: On November’s trade estimates

This October’s foreign trade numbers had offered a sliver of hope for India’s generally weak export story over the past couple of years, as goods exports grew at a 28-month high pace of 17.2%. Any prospects of a sustained turnaround with better global demand for this Christmas season, have, however, come undone with November’s trade estimates released on Monday. In a double whammy of sorts, not only did the value of outbound shipments sink to the lowest in a little over two years at just $32.1 billion but the import bill also hit a record high of $70 billion, rising 27% year-on-year which is the fastest uptick in more than two years as well. Relative to October, goods exports were 18.1% lower. Three of the last four months have now clocked record-breaking import bills, with $64.3 billion in August and $66.3 billion in October. As in August, November’s import bill spike was led by gold imports that jumped 331.5% from last November to a whopping $14.9 billion. Overall gold imports are now up 49% this year, and while higher prices and seasonal spikes for the festive and wedding season explain some of the uptick, this warrants some examination, especially as exports of gems and jewellery are sputtering, including in the employment-intensive businesses such as diamond polishing and gold ornaments. Gems and jewellery exports are down 10.2% between April and November, while imports have widened over 30%, with November seeing a record high deficit of $14.4 billion in the segment.

The overall gap in merchandise trade also expanded to a fresh high of $37.8 billion in November, perhaps the first time that the deficit is higher than the export tally. Apart from precious metals, petroleum also played a key part in this widening, with exports halving to $3.7 billion while imports rose 7.9% to $16.1 billion. Officials have sought to downplay concerns by linking the export slump to lower oil prices, but the same should also hold true for imports. It may well be that the discount gains on Russian oil India had capitalised on to ramp up its exports, are fading, and domestic demand is stronger than before, but economists are a tad puzzled at this phenomenon of recent months. The Commerce Ministry top brass has often argued that rising import bills are not a worry because India is growing faster than the world, much of the imports are directly correlated to, or are inputs for exported goods, and non-oil exports that are rising should remain the focus. But oil and jewellery remain among India’s top tradables, and policymakers must glean a better sense of the dynamics behind this tumult, even if they are unfazed by the expanding trade deficit.