Starved of demand, trade deficit slims further

CRISIL Economy First Cut | January 2020




  • Merchandise trade deficit1 – the biggest contributor to India’s current account deficit (CAD) – has been narrowing for the past few months. December exports dwindled further and imports fell sharper, in furtherance of this trend
  • December marked the fifth straight month of declining exports, the fall steepening to 1.8% on-year compared with 0.3% in November. Imports diminished for the seventh straight month on weak demand, by 8.8% inDecember (12.7% in November). Trade deficit was $0.9 billion lower on-month, and $3.2 billion lower on-year, at $12.2 billion
  • Significantly, imports fell despite rising prices of key items – crude oil and gold. Further, non-oil non-gold imports (i.e., core imports) have declined now for seven months straight. This clearly reflects the extent of weakness indomestic demand.
  • Exports have declined 2% on average in the first nine months of this fiscal, and imports, by 7.8%. Imports are expected to remain subdued as domestic demand is expected to see only a mild pick up even as crude pricesremain in the safe zone. CRISIL Research expects crude to average $63-68 per barrel in fiscal 2020 compared with $70.1 in fiscal 2019
  • Based on these factors, we expect the CAD to narrow to 1.4% of GDP in fiscal 2020, compared with 2.1% of GDP in fiscal 2019


Exports taper for fifth successive month


  • Exports decline in December was driven by petroleum products (-4.2% vs -13.1% previous month), gems and jewellery (-8.2% vs -8.1%), and plastic products (-18.7% vs -15.3%)
  • Engineering goods and chemicals, whose exports had briefly recovered in the past two months, slipped again in the negative territory. Engineering exports declined 1.2% (6.3% growth in November), and organic and inorganic chemicals declined 5.1% (2.5% growth)
  • Deterioration was also seen in key exports of agriculture and allied products, such as rice (-5.4% vs 4.7%) and meat, dairy and poultry products (-17.7% vs 8.3%)


1 All trade figures are in US $ terms