Monday, 19 May, 2025
By: Anshul Vipat
Apart from a small blip in March, the trade deficit has been rising persistently in 2022. Image source: IANS
According to analysts, the current account deficit of India will almost certainly cross 5 percent of GDP in the current year. That is definitely a worrying signal
Countering ongoing geo-political and rising global uncertainties, India’s merchandise exports touched a record USD 229.05 in the past four months with an increase of 15.54 percent. But there is a bad news too. The most significant is the spike in trade deficit that doesn’t seem to stop. According to latest data released by the Ministry of Commerce, the trade deficit in September 2022 reached an all-time high of USD 26.72 billion.
The country achieved merchandise export of USD 32.62 billion in September 2022 with a decrease of 3.52 percent over USD 33.81 billion in September 2021-22. On the other hand, imports zoomed to USD 59.35 billion, an increase of 5.44 percent over USD 56.29 billion in September 2021. India’s merchandise imports in April-September 2022-23 was USD 378.53 billion with an increase of 37.89 percent over USD 274.5 billion in April -September 2021-22.
This has resulted in the record breaking trade deficit. As the accompanying chart shows, apart from a small blip in March, the trade deficit has been rising persistently in 2022. It was USD 17.94 billion in January and jumped to USD 31 billion in July. The reason is simple: domestic factors are sustaining economic growth in India leading to an inevitable surge in imports, apart from high crude oil prices. The IMF's energy price index which includes prices of crude oil, natural gas and coal has doubled from 156.2 in June 2021 to 311.8 in June 2022. These three form the bulk of India's imports. Besides, imports of other commodities has also swelled as demand is slowly moving back to pre-pandemic period.
In contrast, a looming global recession means that growth in exports will be a tough challenge. According to analysts, the current account deficit of India will almost certainly cross 5 percent of GDP in the current year. That is definitely a worrying signal.
Analysts reckon that unless value of crude oil, coal, fertilisers and gold doesn’t come down substantially, the trade deficit for this year would comfortably surpass USD 250 billion. Thanks to a weakening Rupee and the exit of short term investors from Indian stock markets, the total foreign exchange reserves have fallen by a significant USD 60 billion to USD 580 billion in the last few months. Most analysts expect that the investors would not be back in a hurry as they are exiting all emerging markets; not just India. In the event, it becomes critical that the dollar inflows though foreign direct investment and through remittances maintain their momentum.
Although some parameters has shown hope for our economy. As mentioned above, merchandise exports has increased to a record high in 2022 and services exports for the first time achieve the targeted of USD 250 billion in the 2021-22 financial year. Inflation and price index remains stagnated, while industrial production is increasing.
