India’s trade deficit likely to widen in FY19; know here the reason
India’s trade deficit will widen to a four-year high of 6.4 percent of GDP in FY19 ($178.1 billion), according to a India Ratings and Research (Ind-Ra) report. In FY18, merchandise trade deficit stood at $156.8 billion (6.0 percent of GDP) on account of a rise in oil and gold imports
India’s trade deficit will widen to a four-year high of 6.4 percent of GDP in FY19 ($178.1 billion), according to a India Ratings and Research (Ind-Ra) report. In FY18, merchandise trade deficit stood at $156.8 billion (6.0 percent of GDP) on account of a rise in oil and gold imports. Widening trade deficit, escalation in commodity prices, particularly oil, coupled with the expectation of the US Federal Reserve raising its rate further, is exerting pressure on the rupee, the report said.
Even other emerging market currencies are facing headwinds. Rupee has depreciated below 67/USD mark in May 2018 from the high of 63.35/USD in January 2018. Lately, external trade has emerged as a critical component in India’s growth engine. At its peak in FY13, trade accounted 55.8 percent of India’s GDP, it said. "However, post FY13, scenario changed due to sluggish global growth and rising protectionism. As a result, contribution of trade to India’s GDP declined with private consumption and government spending supporting the growth momentum. Based on FY18 estimates, trade contribution to economy decreased to 40.6 percent," the report said.
On import side, a 25.7 percent surge in petroleum/petroleum product imports coupled with a 32.1 percent rise in gold, silver and precious stones imports, led to the overall import registering a growth of 19.7 percent to $459.7 billion in FY18. The proportion of these two commodities in total import during FY14-FY18 was 41.4 percent.
Organic/inorganic chemicals and engineering goods exports registered a 10.0 percent yoy growth to $302.8 billion in FY18 led by the surge in petroleum products. Despite this double-digit growth, exports in FY18 were lower than FY15. India’s trade relations have increased significantly with Asian peers over the years driven by the Look East policy, the report said.
"Trade with China witnessed a CAGR of 7.4 percent over FY10-FY18, largely driven by imports. As a result, trade deficit with China widened to $57.9 billion in 11MFY18 (FY10: USD19.2 billion). On the other hand, demand from Asian countries such as Bangladesh, Vietnam and Nepal contributed to the increase in exports," the report said.