Improvement in exports and tempered external consumption has helped lowering trade deficit

Impact: Positive: (Exports in Manufacturing, Petroleum Products and India's Exchange Rate)

Brief: India's exports continue to have a positive outlook in FY19. In absolute value term, overall exports were valued at $27.9 billion, which is a four-month high number. A positive factor that attributed to a lower import bill is falling prices of certain non-energy commodities in the global market. Improvement in exports and tempered external consumption has also helped in keeping monthly trade deficit below (-) $14 billion. It must be noted that this financial year's peak of (-) $17.9 billion was recorded in July. On the contrary, since peer currencies such as Turkish Lira, Russian Rubble and South African Rand depreciated more than the INR (against the US dollar), external consumption of these countries reduced – impacting imports from India as well.

India's exports continue to remain in the positive outlook in FY19. In absolute value term, overall exports, primarily driven by petroleum products, have reached four month high of $27.9 billion. However, in a year on year comparison, exports have contracted by (-) 2.16% in September, 2018; it must be noted that exports were in a positive trajectory for almost seven months prior to this month. The de-growth in because of a hostile base effect. In September, 2017, first quarter of GST implementation, there was a record growth in exports, growing at 25.8%.

Talking about the import number for September, a sign of improvement is visible. Imports had been growing at above 20% for past four months. In a worst case scenario, it had reached $45.2 billion in July, 2018 on account of firm commodity prices. In order to control imports, India has increased tariff on import of non-essential commodities worth $11.7 billion, last month. However, impact of this move will be seen in months to come. A positive factor that attributed to a lower import bill is falling prices of some non-energy commodities in the global market. In absolute term, September imports have come down to $41.8 billion; the figure was $45.2 billion, a month earlier. Improvement in exports tempered external consumption has helped in keeping monthly trade deficit below (-) $14 billion from a peak of (-) $17.9 billion. On the contrary however, we reckon that, since peer currencies such as Turkish Lira, Russian Rubble and South African Rand depreciated more than the INR (against the US dollar), external consumption of these countries reduced – impacting imports from India as well.

 

YoY Growth in Exports and Imports:

  Export Import Trade deficit
  Overall Petroleum Manufacturing Overall Crude Non-crude oil
FY15 -1.51 -10.66 0.80 -0.27 -16.43 9.11 -137.47
FY16 -15.45 -46.11 -8.61 -15.01 -40.10 -3.84 -118.23
FY17 5.13 3.37 5.37 0.99 5.28 -0.19 -108.55
FY18 10.03 18.55 8.93 20.97 24.98 19.79 -161.46
Sep-17 25.78 40.95 23.85 18.11 18.49 18 -8.90
Apr-18 4.36 -4.54 5.53 1.98 41.13 -7.23 -13.96
May-18 20.17 111.93 9.78 13.53 48.64 4.64 -14.68
Jun-18 17.57 52.53 13.1 21.31 56.53 11.16 -17.15
Jul-18 16.16 49.98 11.57 27.99 60.57 18.54 -17.90
Aug-18 19.34 32.87 17.43 25.41 51.61 18.17 -17.3
Sep-18 -2.16 26.75 -6.16 10.44 33.53 4.11 -13.98

Source: Acuité Research, CMIE

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