Commerce Ministry data hints at $21 billion trade deficit in Feb-22

It was another robust month of Feb-22 for merchandise exports (physical goods). The Commerce Ministry released preliminary data on the first working day of each month pertaining to the previous month. This comes much ahead of the actual trade data that is normally announced by the Commerce Ministry around the 15th of the month. The big news for the month of Feb-22 trade is that $400 billion exports may finally be a reality. 

Let us look at the overall merchandise trade for the month of February 2022. India’s merchandise exports was up 22.3% on a YoY basis to $33.81 billion, while merchandise imports for the month of February were higher by 35% YoY cross the $55 billion mark. This also led to the widening of the trade deficit to $21.2 billion. However, these are preliminary estimates and the final numbers will be known around 15-March only.
It is the trade deficit that has been a major challenge for the Indian economy.

The trade deficit shrank to about $17 billion in Jan-22, but that was just a temporary blip. It may be recollected that the trade deficit had touched $22.9 billion in November 2021 and the figure had averaged around $21.7 billion between September and December. In Feb-22, the trade deficit is back close to the median figure at $21.2 billion, putting pressure on Indian rupee.

Even though YoY comparisons are not very meaningful due to COVID impact last year, we still get a rough idea. For instance, fertiliser imports surged 7-fold last month to touch a high of $1.6 billion while coal imports, amidst the power crisis, has more than doubled to $2.8 billion. India has faced a major domestic shortage of fertilizers and coal and these created a huge import tilt in the month of February also, in line with the previous months.

Unfortunately, gold imports which had tapered to around $2.4 billion the month of January 2022, nearly doubled to $4.68 billion in Feb-22. This is still lower than the Feb-21 figure but that is not too comforting. Gold imports are normally frowned upon by the RBI as it depletes the forex reserves but add little to productivity. In the last few months, despite gold contributing a huge amount to the trade deficit, there have been few attempts to curb it.

Overall, if you look at the export basket, the non-petroleum exports stood at $29.7 billion, which is a growth of 22.2% over the previous year. However, non-petroleum imports were the real issue. These imports surged 47.3% over previous year levels to $31.7 billion. Oil has now risen to $113/bbl and that is putting a lot of pressure on the oil import bill. After all, every $10 rise in crude results in the trade deficit as a share of total trade up by 20-25 bps.

Finally, let us look at the cumulative trade numbers for Feb-22. With just one more month to go, cumulative exports at $374 billion are on target to achieve Piyush Goyal’s target of $400 billion for FY22. However, India is likely to close FY22 with imports above $600 billion, total trade above $1 trillion and a trade deficit of more than $200 billion. The last item in this achievement list could be an overhang for the current account and for rupee value.