India’s trade deficit has widened to its highest level in nearly three years this October. Merchandise exports fell 1.12 per cent from a year earlier, dropping for the first time since August 2016, dragged down by fall in gems, jewelry and textile exports. A large number of exporters have been unable to meet their export orders despite a revival in global demand as billions of dollars were stuck under the new nationwide tax – GST-- launched in July. Refund of input tax credit under GST has been stuck since July, hitting exports. Goods imports were up 7.6 per cent from a year earlier.
Higher crude oil prices and a more than a quarter jump in volume from a year ago pushed up India’s petroleum imports, helping to widen the trade gap. Crude prices have rallied, sending Brent crude to its highest since June 2015, a worry given that India imports most of its energy needs.
Although merchandise trade deficit rose sharply in October, it may not be a source of alarm, as the average trade deficit for September-October is in line with the trend in the months of July and August. One opinion is that exports should be kept out of the purview of GST as paying the tax first and getting a refund is cumbersome, complex and complicated.