India’s trade deficit jumps to record high of $31.02 billion in July

India’s trade deficit rose to a record high of $31.02 billion in July due to contracting merchandise exports and a rise in imports, a considerable rise from the $10.63 billion trade deficit recorded in July 2021.

What is a trade deficit?

A trade deficit is a gap between imports and exports. It occurs when the money spent on imports exceeds that spent on exports.

The country’s trade deficit has widened in recent months due to high global commodity prices. These prices have in turn put pressure on the rupee’s exchange rate which over the last few weeks has hit multiple record lows against the US dollar, crossing the 80-per-dollar mark on July 19.

The deficit can also be attributed to the food and energy crisis due to the war in Ukraine, supply issues, sanctions on Russia, and Covid-induced disruptions.

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Government data shows that India’s import of petroleum products stood at $21.13 billion for the month of July, gold imports at $2.37 billion and the country’s coal imports rose to $5.17 billion, a 164% rise from 2021.

Imports of coal

Coal imports are likely to dwindle due to the government’s decision to reverse its order of the mandatory blending of imported coal. This will give the required boost to domestic coal supplies.

However, the Indian rupee could see further depreciation due to an uncertain global scenario which could result in inflated import bills.

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Exporters can also benefit from a depreciating value of rupee as the Indian currency they receive after selling would be higher than before.

Global market research firm Nomura in a report released after India’s trade data said a downturn in exports has already started and will accelerate in the remaining part of 2022.

It foresees a recession in the United States, Europe, United Kingdom, Japan, South Korea, Australia, and Canada, leading to a growth slowdown globally.