Improvement in trade deficit may help the CAD ratio to remains range bound. We peg the metric at 2.4% of GDP for FY19


Impact: Positive (CAD, Exchange rate)

Brief: The current account deficit had reached 2.87% of GDP in Q2, FY19 as deficit peaked at $49.2 billion and Indian rupee depreciated to around 72 per unit of USD. Crude oil was playing spoil sport too as the commodity was trading at nearly $73 per barrel. A comparison with the situation pertaining to Q3, FY19 narrates a different story. The Indian rupee has appreciated to below 70 (per unit of USD) and crude oil has softened to $71. Trade deficit as a result has reduced to $46.6 billion in the quarter. With further improvements in the external factors, we are expecting the trade deficit number to better its performance in Q4 as well – thus pegging our CAD/GDP ratio assessment at 2.4% for FY19.

Trade numbers for February, 2019 released by Ministry of Commerce portend that India’s trade deficit reached a seventeen-month low of $9.6 billion. While the average monthly trade deficit was recorded at $15.67 billion in FY19 (Apr-Jan), the number for February month came in a single digit. The lower trade deficit in the said month is on account of a de-growth in imports, especially since commodity prices are experiencing a downward trend. Consequently, India’s exports have recorded 2.4% growth whereas imports have contracted by (-) 5.4%.

Since petroleum products are a major component in India’s imports as well as exports basket, a lower oil price is deflating the trade number. We note that the export of petroleum products has contracted by (-) 7.7% and import by (-) 9%. On a positive development, non-petroleum exports have expanded by 3.9% whereas import of the same has declined by (-) 4.5%. A fact that is heartening indeed, given the quantum involved that more than compensates the loss in oil related trade. Despite recording a slower overall growth this year, Non-oil items comprise 88% of India’s entire export and the category’s expansion will surely help in sustaining the current account.

In cumulative terms, trade deficit for FY19 (Apr-Jan) stands $166.33 billion as against $144.49 billion during FY18 TYD. Of particular interest is the fact that quarter wise consistency is missing. The current account deficit had reached 2.87% of GDP in Q2, FY19 as deficit peaked at $49.2 billion and Indian rupee depreciated to around 72 per unit of USD. Crude oil was playing spoil sport too as the commodity was trading at nearly $73 per barrel. A comparison with the situation pertaining to Q3, FY19 narrates a different story. The Indian rupee has appreciated to below 70 (per unit of USD) and crude oil has softened to $71. Trade deficit as a result has reduced to $46.6 billion in the quarter. With further improvements in the external factors, we are expecting the trade deficit number to better its performance in Q4 as well – thus pegging our CAD/GDP ratio assessment at 2.4% for FY19.


 

Trade performance February, 2019:

Export (in % Growth)

Import (in % Growth)

Trade Balance

(Billion USD)

 

Overall

Petroleum

Manu

Overall

Crude oil

Non-crude oil

FY15

-1.51

-10.66

0.80

-0.27

-16.43

9.11

-137.5

FY16

-15.45

-46.11

-8.61

-15.01

-40.10

-3.84

-118.2

FY17

5.13

3.37

5.37

0.99

5.28

-0.19

-108.5

FY18

10.03

18.55

8.93

20.97

24.98

19.79

-161.5

FY18 (YTD)

11.26

22.05

10.62

22.76

26.3

23.47

-144.5

FY19 YTD)

8.92

30.54

5.97

9.82

31.99

5.54

-166.3

Feb-18

4.25

27.51

1.59

10.42

32.07

4.12

-12.0

Jan-19

3.75

-19.36

8.03

0.02

-3.6

1.46

-14.7

Feb-19

2.43

-7.72

3.92

-5.41

-8.06

-4.45

-9.6

 



















Source: Ministry of Commerce, Acuité Research

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