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India hits an all-time monthly export high.
Jan 24, 2022

The Ministry of Commerce and Industry recently released the monthly goods export report of the country. According to the report, in December 2021, India exported 37.29 billion USD of goods, hitting an all-time monthly high.

India has hit a monthly export high as the demand for petroleum and engineering products, jewellery, and gems soared the most elevated in December 2021. The country’s merchandise exports almost reached $300 billion in April-December, higher by 48.85% year-on-year and 26% against the same period in 2019, thus achieving three-fourths of its annual export target of USD 400 billion in the first nine months of FY2021-22.

On 3 January 2022, Commerce and Industry Minister Piyush Goyal relayed the following to reporters in a media briefing, 'With $300 billion in the first nine months of 2021-22, we are on track to achieve our target'.

According to data shown, the top ten main commodity groups, which account for 80% of India’s exports, have reported a 21% growth year on year. Engineering products, which make up 26% of total exports, have increased by 37.27% compared to FY2020-21. The high demand for engineering goods from top importers such as the US, UAE, and Europe bolstered India’s exports.

Exports of petroleum products were valued at $5.6 billion in December 2021, a whole 140.2% higher than in December 2022. Exports of clean petroleum products such as gasoil, gasoline, naphtha, and jet fuel rose from 1.26mn in 2020 to 1.33mn b/d in 2021, with an observed increase in shipments to 1.56mn b/d December from 1.36mn b/d in November.

Export shipments of dirty petroleum products, including bitumen and fuel oil, rose to 55,000 b/d in 2021 from 47,000 b/d in 2020 while noting an increase from 21,000 b/d in November to 25,000 b/d in December 2021. UAE and Singapore emerged among India’s top petroleum product importers in 2021 with 114,000 b/d and 128,000 b/d, respectively. This growth in the export of petroleum products can be attributed to a sharp rise in the price of crude oil and petroleum goods and a recovery in demand for mobility.

Gems and jewellery, which comprise 8% of India’s total exports, rose by 15.8% year on year.

The growth mainly represents the market’s recovery from the Covid slump in 2020, with businesses still trying to reach pre-pandemic levels. According to Colin Shah, chairman of the Gem and Jewelry Export Promotion Council of India (GJEPC), the jewellery market has benefitted from the excess liquidity triggered by the fiscal stimulus provided by central banks globally. As such, part of jewellery export growth can be ascribed to the liquidity surplus across the world. However, according to ThePrint, gold jewellery is still experiencing a fall in export due to 'sluggishness' in markets like the Gulf. The US emerged as one of the biggest importers of Indian gems and jewellery in FY2021-22 as well, and its market for Indian diamonds also keeps expanding steadily.

India recorded merchandise imports valued at USD 59.27 billion in December 2021, witnessing a rise of 38.06% from the same period in 2020. This growth was mainly led by imports of gold, crude oil, and electronic goods. In 2021, India spent a new high of USD 55.7 billion on gold imports purchasing 1050 tons of gold which is more than double the volume of 430 tons bought in 2020. A price drop, favourable to retail buyers and the bridled demand emerging in 2021 due to weddings postponed until 2021 because of the pandemic, is accountable for the sharp rise in gold imports. According to Nomura, gold imports may have also gained momentum in November-December 2021 due to consumers using the precious metal to hedge against rising inflation.

It should be noted that this surge in gold imports put depreciative pressure on the Indian rupee.

Like gold imports, crude oil imports grew by 65.17%, valued at USD 15.9 billion in December 2021. This was in sharp contrast to the significant fall in crude imports and the negative oil demand in 2020 due to the pandemic-related lockdowns. In response to the 100% increase in average run rates across all Indian refineries in 2021, refiners started rapid-purchasing crude oil, having forecasted a sustained rise in demand for products as lesser Covid restrictions has boosted demand for transport fuels such as gasoline to pre-pandemic levels, thus explaining the surge in crude imports. Furthermore, $6.5 billion of electronic imports was reported in December 2021, a 29.7% increase compared to the previous year.

Preliminary data reported a widened trade gap for India in December 2021 as the growth in imports surpassed the growth in exports. India’s trade deficit rose to USD 21.99 billion in December 2021, a significant rise from the previous year’s trade gap of USD 15.75 billion in December. According to Economic Times India, while the trade deficit in December 2021 showed an improvement in export, imports in upcoming months may continue to rise, increasing India’s current account deficit. Economists from Nomura expect an increase in global commodity prices, rising inflation and stable domestic demand to lead to a rise in imports despite India being on the verge of a third Covid wave. This could result in further widening of India’s trade deficit.

While Minister Piyush Goyal revealed that they did not expect any immediate disruption in the supply chain due to the Omicron variant, Engineering and Export Promotion Council of India, Chairman Mahesh Desai argued that they remain cautiously optimistic the Omicron worry is real. It could play a significant spoilsport since India’s major markets in North America and Europe are experiencing a very high number of infections, impacting the order pipeline. While they have not seen any impact yet, a clearer picture will be seen in the upcoming weeks. In addition, boosting trade resilience through regional integration has been a trend in 2021. Still, India finds itself divided between the pressing need to strengthen trade relations in a period of propagating regionalism and act cautiously in hindsight of the consequences of its previous trade agreements.

Considering both, India has been negotiating with its trading countries to improve market access. Regarding FTAs free trade, the deal with the UAE has nearly been finalised and an interim agreement with Australia, covering large areas of interest, particularly labour-oriented sectors like textiles, pharma, footwear, leather products and agricultural products. A recent trade agreement was also finalised with Mauritius. Other negotiations are in progress for an India-EU trade agreement, India-GCC trade agreement, and bilateral trade agreements with Thailand and Israel.

These negotiations are part of India’s export growth strategy and are expected to improve the country’s trade balance in the upcoming years. However, India’s current trade balance is likely to deteriorate with the trade deficit increasing in terms of billion dollars and as a percentage of nominal GDP as its economy recovers and its trade balance shifts more in favour of imports.

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