Global trade had a stellar run last year. India's merchandise trade, too, reached recordhighs across, both imports and exports. Imports grew 55.9% on-year to $609.0 billion on account of the low base from the previous year, high crude oil and commodity prices pushing up import bill, rising demand for consumer goods (particularly, electronics), and partial recovery in industrial production supporting demand for industrial inputs. Exports grew 43.1% to $416.3 billion, supported by both a low base, robust external demand, and higher oil prices, which benefited petroleum exports — India's secondlargest export item.

This year, however, is expected to see a reversal of fortune – multiple headwinds are clouding the global growth outlook, and with it, prospects of merchandise trade. Global growth is expected to slow down, higher commodity prices arising from the RussiaUkraine conflict are fanning an already rising global inflation, major central banks are signaling at aggressive monetary tightening to control inflation, which is expected to dampen demand, and China's strict Covid-19 policy is exacerbating supply chain pressures. On a positive note, services trade is picking up this year, which will lead to a rebalancing of global trade from merchandise to services.

Based on our analysis of changing global dynamics and their impact on India's trade, we expect India's merchandise trade and current account deficit to widen in fiscal 2023 as elevated oil and commodity prices will push up the import bill. Exports are expected to be affected owing to the moderation in global growth. The Russia-Ukraine conflict and resultant rise in international commodity prices present negative terms of trade shock for India, with import prices rising faster than export prices.