India registers first trade surplus after 2002

Merchandise trade is considered a key indicator of economic development. India’s largest trade partners are the United States, the European region, and China. Since 1990, India has sustained the overall trade deficit and also, increased manifold in the past decade.

Currently, the COVID-19 outbreak has led to a disruption in global trade. In June 2020, India's export and import of goods contracted for the fourth consecutive month by 12.4 per cent on YoY basis and 47.6 per cent YoY, respectively. The contraction in the export of goods was relatively slower, which resulted in a goods trade surplus of USD 0.79 billion. This trade surplus of goods was recorded for the first time since 2002. However, on the downside, the surplus was also aided by a sharp contraction in imports, which indicates weak domestic demand.

Since June 2019, the import bill of goods has been declining. This reflects a depressed domestic demand even prior to the pandemic. Further, the pandemic induced lockdown led to the weakening of economic activity and domestic demand thereby, causing a surge in the pace of contraction in import bills. Oil imports, which is the biggest constituent in the import bill, drowned by 55.3 per cent YoY. This decline was due to a fall in oil consumption in India amid lockdown as well as a reduction in world oil prices.

For the third consecutive month, overall India's trade balance recorded a surplus of USD 7.6 billion. This will result in a current account surplus even in the April-June quarter. This seems to be positive news, right? However, there is nothing to cheer as the surplus is primarily accredited to lower domestic demand and a decline in crude oil prices.