The country returned to a trade deficit of $4.83 billion in July, a month after a rare trade surplus in over 18 years, as imports increased, showing signs of a pick-up in business activity.

Exports, contracting for the fifth straight month, slipped 10.21 per cent to $23.64 billion in July, on account of decline in the shipments of petroleum, leather and gems and jewellery items, according to government data released on Friday.

The country’s imports, too, dipped 28.4 per cent to $28.47 billion in July, leaving a trade deficit of $4.83 billion compared with a shortfall of $13.43 billion a year ago.

The outward shipments in July, however, recovered from a steeper decline of 60.28 per cent in April, 36.47 per cent in May, and 12.41 per cent in June.

Fieo president Sharad Kumar Saraf said, “All this has been possible because of the start of business activities across the country and enquiries from almost all major economies which has helped to bring exports to almost 90 per cent of the July 2019 level.”

Wholesale prices

The wholesale price-based inflation continued to remain in the negative zone for the fourth straight month at 0.58 per cent even as the prices of vegetables and other food items were costlier.

WPI inflation in June was (-) 1.81 per cent, while for the month of May and April it was (-) 3.37 per cent and (-) 1.57 per cent, respectively. Retail inflation, however, rose to 6.93 per cent in July from 6.23 per cent in the preceding month.

"The annual rate of inflation, based on monthly WPI (Wholesale Price Index), stood at (- 0.58 per cent) (provisional) for the month of July, 2020 as compared to 1.17 per cent during the corresponding month of the previous year," the commerce and industry ministry said in a statement.

In contrast, the data released by the National Statistical Office on Thursday showed that retail inflation accelerated to 6.93% in July from 6.23% in the preceding month, with food inflation rising to 9.62% from the June level of 8.72%.

Saraf, however, said the global revival and business sentiments still have not picked up, impacting the global supply chain. The government focus should be on FTAs and more of multilateral agreements to further revive our exports and take up competition coming from smaller countries like Vietnam, Bangladesh and Taiwan.

Aditi Nayar, principal economist with ICRA said “the rare trade surplus seen in June 2020 predictability vanished with some recovery in merchandise imports in July 2020, which stamped out the further improvement in merchandise exports. This trend is likely to strengthen in the coming months, as demand for non-oil non-gold imports starts to normalise, gold imports gather steam around the festive/marriage months, and crude oil demand and prices stabilise at a moderate level.”

“Merchandise imports had lagged the extent of recovery shown by many high frequency indicators in Q1 FY2021. With the imports of some diverse categories of goods recovering in July 2020 relative to the previous month, such as petroleum products, gold, project goods, electronic goods etc., domestic demand appears to be emanating from the lockdown-induced torpor,” she added.

EEPC India chairman Mahesh Desai said “engineering exports are amongst a handful of sectors which managed to post a positive trend of 8.6 percent growth as global demand for essential metals and other related items have started to bounce back. However, with resurgence of cases in several parts of the world, it would be difficult to say whether the positive trend can be sustained going forward.
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The oil imports declined by 31.97 per cent to $ 6.53 billion in the month under review and gold imports grew by 4.17 per cent to $1.8 billion.

During the April-July period, exports declined by 30.21 per cent to $74.96 billion, while imports fell 46.7 per cent to $ 88.91 billion. Trade deficit during the period stood at $13.95 billion.

New Delhi: The wholesale price-based inflation continued to remain in the negative zone for the fourth straight month at 0.58 percent even as the prices of vegetables and other food items were costlier.

WPI inflation in June was (-) 1.81 per cent, while for the month of May and April it was (-) 3.37 per cent and (-) 1.57 per cent respectively.

"The annual rate of inflation, based on monthly WPI (Wholesale Price Index), stood at (- 0.58 per cent) (provisional) for the month of July, 2020 as compared to 1.17 per cent during the corresponding month of the previous year," the commerce and industry ministry said in a statement.

In contrast, the data released by the National Statistical Office on Thursday showed that retail inflation accelerated to 6.93% in July from 6.23% in the preceding month, with food inflation rising to 9.62% from the June level of 8.72%.

Inflation in food articles was at a four-month high level of 4.08 per cent in July, mainly due to sharp rise in vegetable prices. Inflation in vegetables stood at 8.20 per cent, against (-) 9.21 per cent in June.

Pulses saw inflation of 10.24 per cent, while for potatoes it was 69.07 per cent in July. Protein rich items like egg, meat and fish saw hardening of prices with inflation at 5.27 per cent. However, onion prices softened and inflation fell 25.56 per cent, while in fruits it was (-) 3.03 per cent.

Inflation in the fuel and power basket fell 9.84 per cent in July, compared to 13.60 per cent drop in the previous month. Manufactured products, however, witnessed inflation of 0.51 per cent in July, against 0.08 per cent in June.

Analysts said the difference in weightage assigned to different goods/items that make up the two baskets.

In CPI, food has a much higher weightage than in the wholesale basket. So, a rise in food prices will cause a bigger spike in the CPI basket than in the WPI one. Similarly, manufactured goods are given more weightage in the wholesale basket. Therefore, any movement in the price of such items will move the WPI more than it does the CPI. While WPI does not include services, the retail price index does, which impacts final numbers.

Madan Sabnavis, chief economist with Care Ratings said weightage assigned to different components is one of the factors behind the varying trend between WPI and CPI. Another is that retail inflation takes into account services, which has gone up sharply and pushes up the CPI numbers. Retail margins higher for food due to more intermediaries.

“One of the key reasons for subdued wholesale inflation is the depressed prices of manufactured items. Manufactured items have 64.2 % weight in the wholesale price index. The average inflation witnessed in the manufactured items during the past twelve months is -0.1% due to the weak demand conditions in the economy,” Sunil Kumar Sinha, Principal Economist, India Ratings said.

He said “the wholesale and retail inflation though paint a contrasting picture and policy prescription, the nominal anchor for RBI is retail inflation.

The retail inflation in combination with recent industrial production data makes the emerging scenario even more complex due to the divergence in trend.

While the industrial production data may support further easing of policy rate, retail inflation breaching RBI’s upper band of 6% in seven out of the last eight months may suggest otherwise. Ind-Ra believes RBI will watch inflation trajectory very carefully and in the interim would continue with the accommodative policy stance but pause on further rate cuts.”

The RBI in its policy review last week kept interest rates unchanged and said it sees an upside risk to inflation. The apex bank projected retail inflation to moderate in October-March period.