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