India trade gap shrinks in May despite rising global strains

[NEW DELHI] India posted a narrower trade deficit in May, even as global supply chains remained under strain from sweeping US tariffs.

The gap between exports and imports stood at US$21.88 billion last month, trade data showed on Monday (Jun 16). That was lower than the US$25 billion deficit forecast by economists in a Bloomberg survey. The trade deficit had widened to US$26.42 billion in April. 

Imports fell 1.7 per cent in May to US$60.61 billion from a year earlier, while exports declined 2.2 per cent to US$38.73 billion, the data showed. 

The lower deficit is a relief for policymakers as a trade deal with the US remains uncertain and geopolitical tensions have climbed sharply following the outbreak of conflict between Israel and Iran. The hostilities have pushed up crude prices and are muddying the prospects for a global economic recovery, potentially impacting India’s exports further and inflating its oil import bill.

India is closely monitoring ongoing conflicts for their impact on trade, even as it actively pursues free trade agreements with the European Union and the US, Commerce Secretary Sunil Barthwal told reporters in New Delhi. 

“We are working out the early tranche, we would like to conclude it before 9th July,” Barthwal said on the trade talks with US.

India recently signed a free trade pact with the UK, and has begun negotiations with New Zealand, Peru, and Chile for free trade agreements, he added.

A narrowing trade gap augurs well for the nation’s current account deficit and may ease some pressure on the local currency, which has started weakening in response to a spike in oil prices. 

However, lower imports may also indicate softening demand. Data released last month showed the economy performed better than expected for the fiscal year that ended in March as domestic demand and investments showed signs of recovery. A dip in imports and exports may mean the recovery is losing traction. BLOOMBERG