India Hits Record Trade Deficit in June; Pressure Mounting on the Rupee

India’s June trade deficit widened to a record $25.63 billion, pushed by a rise in crude oil and coal imports, from $9.61 billion a year ago, adding to fears of further pressure on the rupee.

New Delhi is worried about rising imports after a surge in global crude and commodity prices following the Ukraine war, and rising demand for coal and other goods fuelled by the domestic economic recovery. India’s rupee has plunged 6% against the dollar this year, weighed down by broad strength in the greenback and as investors retreated from domestic share markets.

June’s merchandise trade deficit was the highest ever, according to private economists. In the first quarter of the current fiscal year ending June, the merchandise trade deficit more than doubled to $70.25 billion from $31.42 billion during a year ago period, preliminary trade data released by the Ministry of Commerce and Industry on July 4, 2022 showed.

Aditi Nayar, chief economist at ICRA, the Indian arm of ratings agency Moody’s, said, after an uptick in the trade deficit, the current account deficit was likely to more than double to $30 billion during April-June quarter, from $13 billion in previous quarter. “We expect merchandise trade deficit to remain in excess of $20 billion in the remainder of 2022,” she said.

However, a robust surplus in services trade and foreign exchange reserves of over $590 billion provide confidence to the government that it can manage external payments. A senior government official on July 4, 2022 told reporters that India was facing “headwinds on capital flows,” while the central bank was making all efforts to address currency volatility.

June’s merchandise imports rose 51.02% year-on-year to $63.58 billion, while exports rose 16.78% to $37.94 billion. The slowdown in the world economy is dampening exports, said Mahesh Desai, chairman of the Engineering Exports Promotion Council, noting that high commodity prices and rising logistics costs remained key concerns. “Going forward, the intensity of any further impact would depend on how long the global uncertainties persist,” he said.