Moderation in India’s trade deficit could be transitory: Acuite Ratings

Chennai, Feb 20,2023: The moderation in India’s trade deficit in January could be transitory in nature and factors like bottoming of the commodity prices, global inflation, suspension of container port in Turkey could give pressure on the trade deficit, said credit rating agency Acuite Ratings and Research.

Acuite Ratings in a report maintaining the trade deficit at $106 billion or 3.1 per cent of gross domestic product (GDP) for FY23 added that there could be cushion in the form of: increased dependence on Russia for oil imports and re-exports, improvement in IT/ITeS service exports and slowing of domestic demand due to monetary policy measures.

According to the report, there could be a mild impact owing to the suspension of one of the main container ports in Turkey, in the aftermath of the devastating February 6 earthquake.

“As per Global Trade Research Initiative Yarns, Dyes, and Gems & Jewellery could see negative export growth in Feb-Mar 2023 (Turkey accounted for 2.2 per cent share in India’s export basket in CY22),” Acuite Ratings said.

India’s merchandise trade deficit moderated to a 12-month low in Jan-23, coming in at $17.7 billion compared to $22.1 billion in Dec-22. While both exports and imports eased sequentially in the month, the sharper drop in imports as against exports drove the significant moderation in the trade deficit.

For the month of January, merchandise exports slipped to a 3-month low of $32.9 billion from $38.0 billion in Dec-22 (revised up from $34.5 billion). On annualised basis, this marked the second consecutive month of contraction in exports, at a pace of 6.6 per cent compared to 3.1 per cent in Dec-22, said Acuite Ratings.

Merchandise imports moderated to a 17-month low of $50.7 billion in Jan-23 compared to $60.2 billion in Dec-22 (revised up from $58.2 billion), the report said.