India: The merchandise trade deficit continues to widen in August
In August, merchandise exports increased 19.2% compared to the same month last year, up from the 14.3% expansion recorded in July. This was also above market expectations of 11.8% growth. In descending order, the fastest growing export categories in July were chemicals, petroleum products, gems and jewelry, engineering goods, and drugs and pharmaceuticals.
Meanwhile, merchandise imports surged 25.4% in August, although this was down slightly from the 28.8% increase in July. This strong reading was primarily due to a 51.6% increase in oil imports—on the back of higher prices—and substantially more purchases of gold from abroad.
The merchandise trade deficit widened to USD 17.4 billion in August from USD 12.7 billion in August 2017 (July: USD 18.0 billion). The 12-month trailing sum of the trade deficit fell from USD 163 billion in July to USD 174 billion in August. Going forward, the deficit is likely to remain large: Indian exporters—who are exempt from the Goods and Services Tax (GST)—continue to be hindered by delayed GST refunds. The ongoing trade war between China and the United States also adds uncertainty for the external side of the economy, as the U.S. is India’s largest export market and China is India’s largest import market. Moreover, our panelists forecast higher global oil prices this fiscal year compared to last year.