InvestorQ : Why has the trade deficit widened so sharply for month of December 2020?
Anamika Sodhani made post

Why has the trade deficit widened so sharply for month of December 2020?

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Angel dcosta answered.
5 months ago
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For the month of December 2020, the Indian economy recorded growth in exports and imports. Here are some of the key highlights for the month.

· After a long gap, there was positive 7.56 growth in imports on a year-on-year basis as imports scaled above the $42.50 billion mark for Dec-20.

· The merchandise trade deficit touched a 25-month high of $15.44 billion in Dec-20, more than 50% higher compared to $9.87 billion in November of 2020.

· Exports saw marginal growth of 0.14% in Dec on a yoy basis but sequential growth was very sharp at $27.15 billion for the month of Dec-20.

· The big boost to exports came from sectors like pharmaceuticals, electronics, and gems and jewellery exports. However, oil exports continued to decline.

· Actually, if oil and gems and jewellery were removed from the export basket, then outbound shipments would have grown by 5.5% to $22.22 billion in Dec-20.

· The sharp pick-up in exports in the month on a sequential basis by over 15% can be largely attributed to the pick-up in manufacturing and better health of MSMEs.

· While higher crude prices were partially responsible, the trade deficit was driven higher by a surge in non-oil imports on the strength of pent-up demand.

· If you consider the 9-month period of this fiscal, then exports were lower by 15.73% at $200.80 billion compared to $238.27 billion in the corresponding period last year.

· However, the EEPC has cautioned that exporters continued to face headwinds of extreme nature as major economies were in the midst of a demand recession.

· On the services front, the estimated value of services export was $17.31 billion, while that for imports was $10.32 billion.

· The only apprehension is that due to the sharply higher trade deficit, the current account surplus could sharply reduce below $2 billion in Q3 from $15.5 billion in Q2.

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