Depreciating Rupee has successfully reduced India’s Non-Petroleum trade deficit by $500 million

Impact: Positive (Exporters), Negative (Importers)

Brief: Our analysis reveals that on a YTD basis, India's Non-Petroleum trade deficit has been successfully reduced by nearly $500 million (Rs. 3,600 crores) due to depreciating Rupee. This may come as a respite to Indian exporters. However, rising commodity prices are playing havoc with petroleum imports (27% of total imports) that are rising by over 50%, faster than refined and petroleum related exports.

India's export has recorded 19.2% growth in August, 2018 as against 8.1% during the same period, previous year. Exports have been growing at a positive rate for the past five months and are primarily driven by petroleum products. Despite the volatile conditions, the outbound trade has been positively reacting to imported stimuli, i.e rising crude prices. While imports of crude expanded by 51.6% in August, exports of the commodity related items rose 31.8%. This is because of India's refinery dominated exports contribute over 15% in overall exports by value. However, a pleasant surprise came from the Non-Petroleum based exports, which gained due to a depreciating Indian Rupee and hence became more competitive. In the process, the segment shaved off nearly $500 million from the Non-Petroleum trade deficit.

Talking from the Imports perspective on the other hand, there was an expansion of 51% during the same month. We observed a 15% growth, same time last year. The imports are becoming expensive due to the dual impact of rising commodity prices (especially crude) and a fall in the value of Indian Rupee. As crude imports increase their share from sub 20% to imports he monthly imports have reached an all-time high of $45.2 billion as of currently available data. As a result, trade deficit reached $17.4 billion, which is almost 9% of our annual trade deficit forecast for the year. Trade deficit in FY19 has reached $80.45 billion YTD, which was $67.2 billion, the previous year. We are expecting the trade deficit to exceed $200 billion in FY19 as against $160.6 billion in FY18. Wider trade deficit with a higher capital outflows are expected to further mount pressure on India rupee, which is already at the all-time low. Bad news for India's oil import bill but very positive for the resultant growing competitiveness of Indian exporters.

Percent Change (%)

Exports Imports
Overall Petroleum Non-petroleum Overall Oil Other (excluding oil & gold)
Apr-18 4.36 -4.54 5.53 1.98 41.13 -4.14
May-18 20.17 111.93 9.78 13.53 48.64 11.52
Jun-18 17.96 81.57 11.31 19.54 65.75 7.76
Jul-18 16.16 49.98 11.57 27.99 60.57 16.83
Aug-18 19.2 31.76 17.43 25.41 51.61 13.4
FY18 YTD 7.33 9.99 7.01 28.56 17.44 24.42
FY19 YTD 16.11 52.59 11.55 17.38 53.64 8.91
Source: CMIE
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