Weaker exports in November have widened India's trade deficit. The November trade deficit at $23.3 billion surpassed the previous high of $22.6 billion in September, data showed.

"The deficit widened mainly due to a sharper fall in exports than imports, possibly reflecting rising Covid cases in some of the key markets. Even as the trade deficit is likely to stay high in 2HFY22 (second half of financial year 2022), we pencil in some moderation from current levels. We revise up our FY2022 CAD/GDP (current account deficit / gross domestic production) estimate to 1.6 per cent with USD-INR in the range of 74.5-76.5 in the near term," a report from Kotak Securities said.

Exports register sharp drop

Exports in November fell by 16.2 per cent month-on-month (m-o-m) against 27 per cent growth y-o-y (year-on-year) to $29.9 billion (October: $35.7 billion). Non-oil exports also fell by 14.4 per cent m-o-m (18.3 per cent growth y-o-y) at $26.1 billion. Compared to November 2019, exports were higher by 16.1 per cent and non-oil exports by 18.9 percent.

After plateauing around $33-35 billion over the past few months, exports dropped sharply possibly due to rising cases in Europe and other economies as well as supply shortages impeding order deliveries. Top exports (over November 2020) were petroleum products (145 per cent), plastic and linoleum (43 per cent), cotton yarn/fabrics, made-ups, handloom products, etc. (41 per cent). In eight month FY2022, exports at $263.7 b increased by 52 per cent over 8MFY21 and by 25 per cent over eight month FY2020.

Imports remain high

Imports in November increased by 57 per cent to $53.2 billion (October: $55.4 billion). Non-oil imports remained high at $38.5 billion (October: $40.9 billion) reflecting strong domestic demand even as the festive season impact has faded away.

A slight fall in electronics imports to $5.7 billion (October: $6.8 bn) and gold imports to $4.2 billion (October: $5.1 billion) primarily contributed to lower non-oil imports, though in absolute levels it remained high, Kotak said.

Compared to November 2019, imports were 39 per cent higher and non-oil imports were 40 per cent higher. Imports have been increasing since the slight dip in May 2021. Top imports (over November 2020) were coal, coke, and briquettes (136 per cent), petroleum crude and products (132 per cent), and vegetable oils (79 per cent). In eight months of FY2022, imports at $382.9 billion increased by 76 per cent over eight months FY2021 and by 18 per cent over eight months of FY2020. Trade deficit in November was at $23.3 billion (October: $19.7 billion) and $119.1 billion in eight months of FY2022.

"The external sector will be subjected to risks arising from a relatively wide trade deficit amid normalising economic activity, and high commodity prices, reversal of accommodative policies across major developed markets and possible spread of Omicron variant and global vaccination pace. Policy divergences are expected to lend support to USD, especially as the Fed signals a faster taper and possibly earlier-than-expected rate hike, which could be headwind for emerging market currencies," Kotak said.