NEW DELHI – Data on India’s merchandise trade deficit, which remained elevated at $22 billion in December, showed an improvement in exports, but the trend of higher imports may intensify in the coming months, leading to a widening of the current account deficit, analysts said.
“We expect elevated global commodity prices, high inflation and steady domestic demand to result in higher imports in the coming months, despite India being on the cusp of a third Covid wave,” economists from Nomura wrote.
The foreign firm pegs India’s current account deficit (CAD) at 3.4 per cent of GDP in October-December, sharply higher than 1.3 per cent a quarter-ago and at 1.9 per cent of GDP in 2022-23 (Apr-Mar), up from an estimate of 1.6 per cent in the current financial year.
Provision data shows that India’s trade deficit continued to print on the higher side, clocking in at around $22 billion in December, not far from the record-high of $23 billion a month ago.
While exports gained 37 per cent on an on-year basis in December from 27.2 per cent in November, imports remained robust, registering a 38.1 per cent on-year increase in December.
Imports may have eased from the 56.6 per cent growth seen in November, but that was primarily a reflection of an adverse base effect, Nomura’s economists wrote.
“On a 2y-o-2y basis, import growth accelerated to nearly 50% in December, from 37.4% in November. Part of the widening in the trade deficit is seasonal: on a seasonally adjusted basis, the trade deficit narrowed to $17.8 billion in December from $20.4 billion in November and $18.4 billion in October,” they wrote.
Providing a break-up of the figures, economists from QuantEco Research wrote that the record-high monthly export numbers were led by three individual cases – electronic goods, engineering goods and cotton yarn, fabrics and handloom products.
“Both core exports (headline excluding petroleum products and gems & jewellery) and core imports touched a new record high of $28.7 billion and $38.7 billion respectively,” QuantEco’s economists wrote, adding that the strong momentum in export was also driven by petroleum products, gems and jewellery, chemicals, readymade garments and rice among others.
On the imports side, the research firm pointed out three individual records – organic and inorganic chemicals, plastic and rubber articles and electrical and non-electrical machinery.
From a sequential perspective, the increase in import momentum was also attributable to petroleum products, transport equipment, gems and jewellery and electronic goods, QuantEco said.
According to Nomura’s economists, an analysis of oil imports — which rose 48.5 per cent on a two-yearly basis — shows a sharp increase in the import volumes, given that global oil prices had begun to moderate in November.
The strong momentum in gold imports, which rose to $7.4 billion in December from $4.2 billion in November and $5.1 billion in September-October, could partly reflect consumers opting for the precious metal as a hedge against rising inflation, Nomura wrote.
With domestic restrictions to curb the spread of the Omicron are not yet as stringent as previous lockdowns, QuantEco expects the adverse impact on economic activity and demand for imports to be limited as against the experience of the first and second waves of the disease in India.
The research firm has increased its forecast for the current account deficit in the current year to $48 billion from $40 billion earlier. In the previous financial year, India had printed a current account surplus of $24 billion.
Source:economictimes.com