Data: What is behind an ‘Overall Trade Surplus’ in the first half of 2020-21?
Sai Krishna Muthyanolla
October 21, 2020
The Union Minister for Commerce & Industry recently tweeted that India recorded an overall trade surplus of USD 17.74 billion during the first half of 2020-21. Does this surplus indicate any definitive trend or is it because of contraction in trade because of COVID?
On 15October 2020, Union Minister for Commerce and Industry tweeted mentioning that there is a 9.2% growth in terms of rupee value for India’s merchandise exports in September, compared to same period last year.
He further stated that India has had a trade surplus during April-September 2020, to the tune of $17.72 Billion and attributed it to PM Narendra Modi’s call for Aatmanirbharta i.e. Self Reliance.
In September, India's merchandise exports recorded growth of 9.2% in Rupee & 6% in Dollar terms, against the same period last year
In line with PM @NarendraModi ji's call for Aatmanirbharta, our total trade surplus for April-September is $17.74 Billion
📖https://t.co/eKAYt4twxm pic.twitter.com/5eHAbwrD2V
Earlier, during July, Piyush Goyal had tweeted that India had a surplus in ‘Goods Trade’ for the first time in 18 years. We did a factcheck on the claim and observed that it was a misleading claim since the goods trade surplus during Q1 of 2020-21 was due to the contraction in the overall trade because of COVID-19 and had nothing to with the Atmanirbhar Bharat Abhiyan.
In this story, we take a look at the trade situation in the country and analyse if there is any positive trend as highlighted in his latest tweet.
Trade deficit for Goods at 20,000 crores despite increase in Exports in September 2020
As per the information provided by Department of Commerce, the total value of exports in goods for September 2020 is estimated at Rs. 2.02 lakh crores. As mentioned in tweet by Piyush Goyal, this is higher than the value of exports in goods for September 2019, when it was Rs. 1.85 lakh crores i.e. an increase of Rs. 17.05 thousand crores or by 9.2%.
In spite of an increase in the exports in goods, the total value of exports is still less than the value of imports in September 2020, which is Rs. 2.22 lakh crores. Hence the trade deficit in goods in September 2020 was Rs. 20 thousand crores. This deficit was despite the fact that the value of imports in September 2020 lower than that of September 2019 by about Rs. 46 thousand crores.
The increase in exports for September compared to that of previous year indicate an expansion in export trade, but not enough to surpass the value of imports. It ought to be noted that, as highlighted in the previous story, the fall in imports is more due to the fall in domestic demand than an increase in domestic production to replace goods.
The total volume of goods trade during first half of 2020-21 less than that of the previous year
Although the export value of goods for September 2020 is higher than that of same month last year, it isn’t the case for the overall exports until the end of second quarter i.e. Septmebr’2020.
The value of exports during the first half of 2020-21 (April-September 2020) is Rs. 9.38 lakh crores, whereas it was Rs.11.13 lakh crores during the same period in 2019-20. This is a short fall of Rs.1.75 lakh crores i.e. a fall of around 16%.
Similarly, the value of import of goods during the first half of 2020-21 (April-September 2020)  is Rs.11.14 lakh crores, less than the value of imports during same period in 2019-20, when it was Rs. 17.35 lakh crores i.e. fall of nearly 36%.
The surplus in trade of goods during the first quarter of 2020-21 has become a deficit by the end of second quarter. By the end of second quarter, the trade balance of goods showed a deficit balance of Rs. 1.76 lakh crores.  Although the deficit is less than same period last year, it indicates a contraction in economy than an expansion in trade.
The Trade surplus in June 2020 is followed by deficit in the ensuing months
In an earlier tweet, Union Minister Piyush Goyal highlighted the surplus of trade in goods during June 2020 and attributed it to the Atmanirbhar initiative of the government. In an earlier story, we had explained that this to the contraction in the economy, especially with the low import of goods due to the lockdown.
However, the trade surplus in goods in June 2020 is followed by a deficit in the ensuing months. The surplus in June 2020 has turned into deficit indicating that June’s surplus was a one-off incidence because of externalities caused by COVID than a trend due to institutional or policy changes.
All the three months of Q2 of 2020-21 recorded a deficit in trade of goods.  It has to be noted that there has been a higher corresponding increase in the value of exports in September 2020 compared to that of August 2020, bringing down the deficit by around Rs. 30 thousand crores.
The increase in September 2020 can be attributed to an increase in export value of Gems & Jewels, Engineering Goods & Petroleum Products. Whether this increase is a one-off instance, or a trend can only be ascertained in the coming months.
Lower volume of Goods trade has a bearing on the overall trade surplus
In the tweet, the Union Minister states that India has a Trade surplus of $17.74 billion USD for the period April-September’ 2020 and attributes it to Atmanirbhar initiative.  However, this surplus can be attributed to
In the case of services, the net trade for April-Sep’ 2019 was a surplus of USD 38.75 billion (Exports – USD 107.63 billion & Imports – USD 68.8 billion). For April-Sep’2020 the net trade for services was a surplus of USD 41.18 billion (Exports – USD 96.62 billion & Imports – USD 55.44 billion).  Hence, through the volume of services trade in the current year is lower than last year,  the difference is not as significant as in the case of goods trade.
In the case of the trade in goods, the deficit for April-Sep’2019 was USD 83.7 billion (Export – USD 159.57 billion & Imports – USD 243.28 billion). During the same period in the current year, the deficit is USD 23.44 billion (Exports – USD 125.25 billion & Imports – USD 148.69 billion). There is nearly a USD 95 billion difference in imports of goods from last year. The lower imports are due to a contraction in the economy, a result of the low demand on account of COVID.
Therefore, the minor difference in trade of services and a huge fall in trade of goods (which is the major contributor towards overall trade deficit), resulted in an overall trade surplus for April- Sep’ 2020. This overall trade during April-Sep’2020 is more due to the lower volume of trade than an actual increase in the exports over imports.
It is too early to identify any surplus or increase as a definitive trend
The numbers provided by the union minister in the tweet are factually correct. However, as highlighted in this story, they are misleading and do not present a complete picture.  As was the case with his earlier claim of trade surplus in June’2020, the trend did not sustain in the ensuing months. The overall trade surplus during the first half of 2020-21 (April – Sep’2020) may not sustain in the coming quarters as imports get back to their normal levels once domestic demand picks up. Hence, what we are witnessing may be a temporary trend and not a definitive one.
However, the increase in exports over previous months is a positive sign and indicates that domestic production may be getting back on its feet.
It is still early days to conclude any of these numbers as a definitive trend and more so because of any policy changes. We might have to wait a few more quarters to understand which way the wind is blowing.