Balance of Trade for October 2019

Lower import bills narrowed India's trade deficit to USD 11.01 billion in October.

India's trade deficit narrowed to USD 11.01 billion in October, which was far lower than USD 18 billion deficit recorded in October 2018. The significant shrinkage in the trade deficit was due to the continued decline in imports. Merchandise exports too declined for the third consecutive month in October.

The merchandise imports witnessed the sharpest contraction of 16.3% YoY to USD 37.4 billion in nearly three years, mainly on account of fall in the inbound shipments of crude oil. It stood at USD 9.63 billion in October, which was 31.7% lower compared to the year-ago period. The decline in crude oil imports is due to the softening of global crude oil prices since the beginning of this fiscal year. Weakness in imports is broad-based with non-oil and non-gold imports contracting for the twelveth consecutive month, reflecting the weak domestic demand in the economy.

Exports contracted by 1.1% YoY to USD 26.38 billion in October as 18 out of 30 major exporting sectors, including labor-intensive sectors, witnessed negative growth. The slowdown in the global economy has hurt exports. The pace of contraction in October was slower when compared to a decline of 6.6% YoY in the last month. However, the cumulative April-October picture is depressing with exports registering negative growth of 2.21% YoY, which doesn't seem to align with India's target of achieving 19%-20% export growth to become a USD 5 trillion economy.

Usually, a narrowing trade deficit is celebrated as it helps contain current account deficit and helps ease pressure on the currency. However, this time, it is a major worry for the Indian economy as it is driven by lower non-oil and non-gold imports, which shows that domestic demand remains weak.