India Witnesses Trade Surplus For First Time In 18 Years As COVID-19 Hits Imports

For the first time in 18 years, India's merchandise trade balance witnessed a surplus of $790 million in the month of June. Contraction in exports reduced while imports continued to fall at a steeper pace.

The trade surplus comes with imports plunging as the coronavirus pandemic depressed domestic demand for crude oil, gold and other industrial products, reflecting a slowing economy.

Indian exports and imports have been falling since March and deteriorating India-China relations, shrinking global demand and disruptions in supply chains are likely to pressure the trade outlook over the next few quarters.

Asia's third largest economy is expected to contract by up to 5% this financial year, beginning April, as an over two-month-long COVID-19 lockdown has impacted the economic activities and consumer demand.

Merchandise imports contracted 47.59% in June to $21.11 billion from a year ago, while exports fell 12.41% to $21.91 billion, resulting in a marginal trade surplus, data released by the Ministry of Commerce and Industry.

Even as this comes as a relief for the first time since 2002, economists don't see this sustaining as economic activities resume, domestic demand will pick-up which will consequently, bring back import demand.

"India looks headed for a second straight quarter of current account surplus in 1QFY21, but trade surpluses in India have usually not lasted more than a month, therefore we do not believe this will sustain for long," Teresa John, economist at Nirmal Bang Securities Ltd said.

Rahul Bajoria, chief India economist at Barclays, said, "a trade surplus may not last for long, nonetheless, trade deficits in India are likely to remain low and manageable."

During June, merchandise exports fell 12.4% while imports plummeted 47.6%. Within exports, items including iron ore, agricultural and food products, chemicals and pharmaceuticals, witnessed an improvement in demand.

As for imports, non-oil non-gold imports remained weak, pointing to a subdued domestic demand scenario. Imports of key contributors to India's trade balance – petroleum, gold and electronics, declined.

Economists do not see an immediate revival in imports of gold given the high prices and uncertainty surrounding income growth.

Meanwhile, a trade surplus would result in a current account surplus in the June quarter of fiscal year 2021.

"We maintain that India is set to post a strong balance of payments surplus this fiscal year, partly helped by large capital raising of Reliance Jio, but also a large current account surplus, which we expect to persist through FY20-21, likely coming in at $25 billion, Bajoria added.

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