The internals of the May import-export numbers and recent trends indicate that the May high of $23 billion trade deficit is not a one-off, and that a monthly trade deficit of $22-25 billion looks more likely
The trade deficit for the month of May coming in at an all-time high of $23.3 billion should ring a warning bell, even if not an alarm bell in the Reserve Bank of India (RBI) and in the Finance Ministry. At $23 billion a month, the annual merchandise trade deficit will work out to $275 billion; the past-12-month trade deficit works to $212 billion. In contrast, the last five-year average trade deficit is $147 billion.
The internals of the May import-export numbers and recent trends indicate that the May high of $23 billion trade deficit is not a one-off, and that a monthly trade deficit of $22-25 billion looks more likely. Here’s why:
1. Imports have grown 56 percent in May including oil and 44 percent excluding oil. The oil import bill was averaging $15 billion from September 2021 to February 2022, ie. even before the war. With crude prices shooting up by 20 percent since February, the oil bill may average $18 billion a month hereafter.
2. In addition, the government is coaxing, even coercing power gencos to blend their coal with at least 10 percent imported coal. Global coal prices have trebled in the past year and together this has led to our coal import bill in May rising by 156 percent year-on-year to $10.2 billion. It’s tough to see this recede much anytime soon.
3. Electronics imports have jumped 56 percent in May to $12.1 billion. At this stage, one doesn’t know which kind of imports these are, but given the unsatiated demand for chips from Indian autos to consumer goods companies and given the K-shaped recovery leading to demand for imported phones and other consumer goods, electronics imports too are unlikely to see moderation.
4. Gold imports in May have been high at $5.8 billion and even if one takes the average of the last 12 months, gold imports work out to $4-5 billion per month. Gold imports normally rise during times of high inflation expectation; so it’s not logical to expect this import item to fall in the coming months.
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