Economists have cited the sequential increase in merchandise imports in May, which led to a widening trade deficit to a five-month high, as a positive sign of a stable local economy in India. This article dives into the details of India’s merchandise import jump, exploring its implications and the factors contributing to the trend.
Merchandise Imports and Exports:
In May, India witnessed a significant jump in merchandise imports, with a 14.5% increase over the previous month, reaching a value of $57.1 billion. Meanwhile, exports experienced modest growth of 0.7% and amounted to $35 billion.
Trade Deficit and Domestic Demand Resilience:
The surge in merchandise imports resulted in a widening trade deficit of $22.1 billion in May, compared to $15.1 billion in the previous month. Economists view this as a positive indicator of domestic demand resilience in the country. Madhavi Arora, lead economist at Emkay Global, points out that the recovery in imports reflects the strength of domestic demand. She also highlights the seasonal trend of increased imports in May following a previous month’s slump.
Key Import Categories and Resilience in Domestic Demand:
Various import categories have shown significant growth, indicating resilience in domestic demand. Gold imports more than tripled to $3.7 billion, reaching the highest level since October. Oil imports increased by 3%, and core imports, excluding oil and gold, rose by 12.1%. Industrial goods like machine tools and consumer goods such as electronics also experienced robust growth.
Importance of Fertilizer Imports:
Ahead of the Kharif sowing season, there has been a significant jump in fertilizer imports, signaling the importance of these imports for agricultural activities. Rahul Bajoria, chief India economist at Barclays, highlights the significance of fertilizer imports in supporting the agricultural sector.
Expectations for Current Account Deficit:
Despite the wider merchandise trade deficit in May, economists believe that it will not affect expectations of a manageable current account deficit for the financial year. Factors such as falling commodity prices, a growing services trade surplus, and rising remittances have contributed to the improvement in India’s external metrics. Bajoria notes that a slowing global economy suggests that commodity prices will trend lower on average compared to the previous year. Madhavi Arora predicts that the current account deficit will settle at 1.9% of the gross domestic product for the fiscal year ending March 31.
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Image Credits: Reuters
India’s recent surge in merchandise imports reflects a stable local economy with resilient domestic demand. The increase in various import categories, including gold, oil, and core imports, indicates the strength of India’s domestic consumption. While the wider trade deficit may raise some concerns, economists remain optimistic about India’s manageable current account deficit, thanks to factors such as falling commodity prices and a growing services trade surplus. To learn more about India’s economic landscape and its implications, click the link in our bio.
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