Trade balance turns surplus after 18 yrs, steep contraction in imports rings alarm bells – The Economic Times

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New Delhi: India registered a trade surplus after almost two decades with the balance in June turning in the country’s favour at $790 million, official data released on Wednesday showed. However, a sharp contraction in imports, an indicator of domestic demand, raised concerns, with economists terming the surplus “unpalatable” and “temporary”. The previous trade surplus was in January 2002.

India’s exports contracted for the fourth consecutive month and shrank 12.41% to $21.91 billion in June led down by lower shipments of petroleum, textiles, engineering goods, and gems and jewellery.

With 26 of the 30 major items of imports contracting in June, overall imports plummeted a steep 47.59% to $21.11 billion.

The contraction in imports remained widespread last month, except medicinal and pharmaceutical products, vegetable oils and pulses, suggesting that domestic demand remained constrained even during the unlock phase. Petroleum, electronics and gold, the top three imports of the country, shrank in June. Oil imports dipped 55.29% to $4.93 billion in June while gold imports plunged 77.42% to $608.7 million.

“The underlying dynamics of this trade surplus remain unpalatable, given the implications for the strength of domestic demand,” said Aditi Nayar, principal economist at ICRA.

Non-oil, non-gold imports-an indicator of the strength of domestic demand- shrank a steep 42.2% last month.

In the first quarter of the year, exports fell 36.71% to $51.32 billion, while imports shrank 52.43% to $60.44 billion. India’s current account balance also recorded a marginal surplus at 0.1% of the gross domestic product (GDP) in the quarter ended March 31 after a gap of twelve years.

“This surplus is unlikely to be sustained, but India looks poised to run a large current account surplus for some time,” said Rahul Bajoria, chief India economist, Barclays.

Federation of Indian Export Organisations expects the full year contraction in exports to reach 20% in case of a second wave of the Covid-19 pandemic.

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