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The Narendra Modi government which is vying for investment worth ₹10.5 trillion for smartphone production gave approval to two Taiwanese firms earlier this month. Photo for representational purpose only: iStock

Pandemic disrupts trade balance; exports swell, but so do imports

Exports from India increased substantially in August this year when compared to the same month last year. However, the trade deficit is still on the higher side since imports increased at a higher pace than exports.

Economists say the increased trade deficit may affect job creation in the import-export sector, however, it would be difficult to predict the extent of impact.

The Federal analyses India’s trade data for August 2021.

Latest data provided by the Ministry of Commerce shows that India’s trade deficit stood at USD 8,204 million in August 2020, which increased to USD 13,865 million in August this year.

K.R. Senthilnathan, Fund Manager at NAFA AMC, told The Federal: “The entire manufacturing sector was closed for months, but the consumer demand has remained the same or rather increased. Hence, there is an increase in imports. It’s more of a cause-effect relationship between employment and increasing trade.” Senthilnathan said many of the commodities imported could have been manufactured by small business units back in India. He said it would be too early to comment on positive or negative effect of the trade deficit on the economy right now.

“We will have to wait for at least two more quarters to assess the impact of the trade deficit on the economy. Also, the government will not bother much about imports right now or employment generated in those (export or import driven) sectors will get affected,” Senthilnathan said.

The US had seen a loss of millions of jobs after the great recession. According to a research published in Economic Policy Institute by Robert E. Scott, the increased trade deficit between US and China at that time turned out to be one of the major reasons for job losses in the country then. It shook the entire manufacturing sector in the US, as per the research. Currently, India is also facing an increase in trade deficit, but its impact on employment could be seen later.

How much did trade change?

Exports in August 2021 jumped 45.17 per cent when compared to August last year. It increased from USD 22,829 million to USD 33,140 million during the corresponding period. At the same time, imports went up by 51.47 per cent – a much higher growth when compared to the exports. The ministry recorded imports of USD 47,006 million, compared to USD 31,034 million in the same month last year.

The petroleum sector has topped both the import and export lists. The deficit is also highest for this group of commodities. The other two categories — Electronic Goods and Organic & Inorganic Chemicals — have shown a spike in import as well as exports. Engineering goods (USD 9631 million) along with gems and jewellery (USD 3428 million) were the top performers in the exports list.In the imports list, gold had the upper hand after petroleum products. Gold worth USD 6746 million was imported in August, according to the Ministry of Commerce data. Electronic goods followed gold with imports worth USD 5910 million.

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