Covid-19 impact: After 60% fall in April, exports shrink another 36% in May

Trade deficit at only $3.15 Billion as crude, gold imports continue to drop

Exports contracted 36.47 per cent in May after a historic fall in April, even as the lockdown eased and ports cleared cargo. While the government says this offers hopes of recovery, exporters remain doubtful. Exports have now fallen for the third straight month.
 
Except for iron ore, pharmaceuticals, spices, and rice, all other commodities have printed negative growth in May, the commerce department said on Monday. Also, crucial petrochemical exports continued to shrink, falling 68.4 per cent, up from 66 per cent in April. However, policymakers are less worried about the knock-on effects of the current series of major contraction on outbound trade in 2020-21 (FY21). The March-June period is crucial in the export cycle for many sectors, such as apparel and engineering goods, but export numbers are encouraging, they say.
 
Last week, Commerce and Industry Minister Piyush Goyal said exports in the first week of June were on a par with what they were in June 1-7, 2019.      
 

“Exports during June 1-7 dipped by only 0.76 per cent to $4.94 billion, from $5.03 billion in the same period last year,” said Goyal. Earlier, Goyal had said he expects contraction to narrow to 8-10 per cent in June. But in May, 27 of the 30 major product groups showed higher double-digit negative growth. “We need immediate roll-out of additional 2 per cent export incentives across the board, rising to 4 per cent for labour-intensive sectors. Allowing rollover of forward cover without interest and penalty, and automatic enhancement of limit by 25 per cent to address liquidity challenges,” said Sharad Kumar Saraf, president, Federation of Indian Export organisations.
 
Engineering Export Promotion Council of India Chairman Ravi Sehgal said: “Even within engineering exports, we need to rework our strategy. Sub-sectors, like medical devices, will be doing well, while core infra industries may take time to recover.”
 
With several nations continuing to order major quantities of drugs from India, exports rose 17.32 per cent in May after a marginal 0.25-per cent rise in April. In April, only $10.36 billion worth of goods had been exported. The rate of fall in outbound trade was the most since April 1, 1995, even as manufacturing units remained shut for the first 20 days owing to nationwide curbs and faced major logistics and supply-side hurdles later on. The country’s exports had declined 34.57 per cent in March.

 
Imports also continued to contract, albeit at a smaller margin than April’s 58.65 per cent. In the latest month, imports fell 51 per cent to $22 billion, even as crude oil imports were drastically cut, and gold inflows almost wiped out. As a result, the monthly trade deficit reduced to just $3.15 billion. “The merchandise trade deficit slipped to the lowest level since March 2016, led by compression in oil, gold, and other imports. The relatively contained pick-up in imports suggests domestic demand remained muted during the lockdown,” said Aditi Nayar, principal economist, ICRA.

As a result, the largest component of the import bill — crude oil — saw the cost of inbound shipments fall 71.98 per cent, up from 59 per cent to $3.48 billion.
 
Gold, the second-largest item in the import bill, witnessed incoming shipments get almost obliterated for the second month. Imports fell 98.4 per cent, slightly less than the 99-per cent drop seen in the month before.
 
Non-oil and non-gold imports — an indicator of domestic industrial demand — fell for the 19th month, contracting 33.74 per cent.

 
ICRA expects current account surplus of $12-15 billion in FY21. However, if domestic demand recovers quicker than global demand, the size of India’s current account surplus may be limited below $10 billion.

Contraction rate in services exports up

Exports in services are estimated to have contracted by 15.95 per cent at $15.70 billion in May. This was the second month in a row that these exports fell. Unlike merchandise exports, outbound shipments saw the rate of contraction rising in May, compared to 8.92 per cent in April. Imports are estimated to have fallen 31.38 per cent in May. Indivjal Dhasmana