JUNE TRADE SURPLUS – EXACTLY LIKE 20 LAKH CRORE STIMULUS!

In Hindi movies, we always see a scene where the entire life of the protagonist is falling apart and yet there will be someone who will say, “sab theek ho jayega.”

Yes, it’s a way of placating the agitating mind but can we use the same logic in interpreting economic numbers? Putting forth a rosy picture which does not exist, just because you decide to look at it “differently” doesn’t mean that things are good. There is a desperate need to listen to some good news, something which lifts this feeling of gloom and doom but gift wrapping a dud, and presenting it like a Kohinoor diamond doesn’t make sense.

We are referring to the trade surplus news. Commerce Minister, Piyush Goyal on 15^th July, Tweeted, “Rapid Turnaround of Exports: Realising PM @NarendraModi ji’s vision of Atmanirbhar Bharat, for the first time in 18 years, India records a monthly goods trade surplus in June!”

He went on to say that there is has been a monthly goods trade surplus for the first time in 18 years, saying India is a net exporter. He showed a figure wherein for June 2019, there was a goods trade deficit of $15.3 billion while in June 2020, there is a goods trade surplus of $0.80 billion.

The way in which it has been presented, on the face of it, for the layman, it will come forth as good news. In simple parlance what this means is that in first time in almost two decades, we have exported more than what we import, in value terms. This in turn means that our import bill is tapering even as exports are kicking up.

This presentation of data is like the Rs.20 lakh crore stimulus package – all air.

The fact is completely different. Exports have been contracting for four consecutive months and imports are down because of the pandemic, wherein we are importing lesser petroleum and non-petroleum products, lesser gold and silver too.

Take a look at the facts:

• Q1FY21 total value of imports at $60.44 billion, down 52% (YoY).
• Q1FY21 total value of exports at $51.32 billion, down 37% (YoY).
• In June, exports fell 12.5% to $22 billion – drop in shipments of petroleum, textiles, engineering goods, and gems and jewellery items.
• In June, imports fell 47.5% to $21.11 billion.
• Oil imports in June fell 55% while gold dropped 77.5%.

What this data clearly shows is that the trade surplus which the Govt is so proud about is not a normal trade surplus – it is on account of death of demand. This surplus is on account of fall in imports of intermediate and capital goods, which in turn is on account of falling domestic demand.  So, how can crashing demand be spun into good news?

Fact – trade surplus for June is a reality but it did not come from a healthy trade and most definitely had nothing do with Atmanirbhar Bharat.

This trade surplus is a result of lowered trade activity on account of domestic economic slowdown, induced due to lockdown. Imports fell with no Indian substitutes taking its place. Thus we have a long, long road ahead to becoming Atmanirbhar – the trade surplus will become a true celebration only when all that we import today is made in India.