June 2022 trade deficit touches a life time high

On 04th July 2022, the Ministry of Commerce released the provisional figures for trade numbers for the month for June 2022. Normally, the practice is to release the actual merchandise trade numbers around the middle of the month but the indicative numbers are normally published in the first two days of the month itself to give an idea of the kind of trade numbers achieved. While this is not the final figure, it normally corresponds very closely to the actual number, barring some minor adjustments.

The one standout feature of the month of June was the merchandise trade deficit (deficit arising from the trade in physical goods), touched an all-time record of $25.63 billion. This is more than double the trade deficit figure of $9.61 billion recorded in June 2021, but those were the peak of COVID times and are not strictly comparable. As usual, a spike in the imports of oil amid rising price levels led to a sharp spike in the import bill. In the last one year, the crude prices have gone up almost two fold resulting in widening of the deficit.

For the month of June 2022, the overall merchandise exports increased by 16.8% yoy to a level of $37.95 billion. That is slightly lower than the median export figure of $40 billion achieved in the previous three months of March, April and May. However, for the same month, the merchandise imports were up 51.03% at $63.58 billion. This translated into a monthly trade deficit of $25.63 billion. The total import bill and the total trade deficit for the month of June 2022, based on provisional figures, are the highest ever recorded till date.

Let us look at the specific heads of exports for the month of June 2022. Non-petroleum exports increased by 11.9% in the month of June 2022 on a yoy basis to $92.5 billion for the first quarter ended June 2022. Apart from petroleum products, the other major contributors to exports were electronic goods and readymade garments. However, there was also a fall of 22.54% in cotton yarn exports, 22.23% fall in plastic exports, a 1.57% fall in the export of engineering goods and a 1.27% fall in the export of pharmaceuticals.

If you look at the June 2022 import story, there has been a surge across a number of commodities. For instance, there was a 94.17% spike in petroleum and crude import, 241% spike in coal and coke import and a whopping 169% increase in gold imports in the month of June 2022 compared to June 2021. Overall, the pressure of making adequate coal available to the power sector and the pressure of meeting the input requirements of the steel has led to a spike in the imports of coal, coke and briquettes. Crude has been import intensive.

Now for the bigger story. For the first quarter ended June 2022, India reported record quarterly trade deficit of $70.25 billion. That is going to be a huge drag on the current account, even if you adjust for the services account surplus. But this also projects full year trade deficit at $280 billion and the full year merchandise imports at $750 billion. With the current forex reserves at $590 billion, the import cover is now just about 9 months. That also limits the ability of the RBI to freely intervene to defend the rupee.