Commerce Secretary optimistic of changing weather after India's August trade data shows exports losing steam

Speaking to CNBC-TV18 after the data release, Subrahmanyam said, “Exports are not down, exports in the month of August are flat; what they were last year. Every month last year, we were breaking records already. So the August figures last year were already at a high.”

The sharp deterioration in the export-import imbalance has come on the back of several developments that include the ongoing Russia-Ukraine war that caused a huge spike in global oil and commodity prices, supply chain bottlenecks due to the slow easing of COVID restrictions in China and pent-up demand for imports as the manufacturing sector recovered from the pandemic's shadow.

The export fall comes as the oil import bill balloons. India spent about USD 99 billion on oil imports in April-August, more than the USD 62 billion spent in the entire 2020-21 (April 2020 to March 2021) fiscal and more than half of the USD 120.4 billion spending in 2021-22 fiscal. While India is 85 percent dependent on imports to meet its oil needs, a domestic coal crisis also forced the tapping of overseas supplies of dry fuel for meeting the power demand during peak summer.

“We took some measures to control inflation, enable adequate supply domestically, largely in the areas of food for food security. So we put some restrictions on wheat. We also put some restrictions on windfall profits and exports of fuel. We also put some restrictions on steel and related metals. And earlier last year, we had put restrictions on iron ore. So all that would have an impact on export,” he added.

Subrahmanyam said the government is confident that exports would touch USD 450 billion this year compared to USD 400 billion last year.

If the current trends continued through the remaining part of the fiscal, India's trade deficit may touch USD 250 billion by March 2023, analysts said. This would compare to a trade deficit of USD 192.4 billion in the previous 2021-22 fiscal year. A widening trade gap has a direct impact on the current account deficit (CAD), which in turn influences the Indian rupee's resilience, investor sentiments and macroeconomic stability.

India's CAD, the broadest measure of India's sell-and-buy balance with the rest of the world, is likely to touch USD 105 billion or 3 percent of the GDP this fiscal.

In recent months, the government has brought several measures to rein in imports. It has raised the import duty on gold to 12.5 per cent from 7.5 percent, imposed restrictions on the import of several items, including electronic goods and set a target to increase the share of ethanol-blended fuel in domestic consumption from 10 percent now to 20 percent by 2025.

While these measures have helped in some moderation in the growth of the import bill, as reflected in the August numbers, the pressure points are on account of such imports, the demand for which is inelastic. These include crude oil and petroleum products, coal, chemicals and critical electronic components, such as semiconductor chips that account for more than 60 percent of the import bill. Also, India is highly dependent on the import of vegetable oil.

Besides oil, electronic goods imports have risen by almost 30 percent to USD 32.6 billion in April-August, while coal imports nearly tripled to USD 26.8 billion and vegetable oil rose by a third to USD 91 billion.

Gold imports are, however, down 13 percent at USD 16 billion. It is hoped that global commodity prices would continue easing in the months to come.

Also, many companies are front loading imports due to high freight costs and logistics disruptions globally.

On the other hand, a slowing global economy has also affected the demand for Indian exports. After growing at an average 18 percent in the first four months of the current fiscal, exports registered a marginal contraction in August, as the latest data showed.