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10
May 2018
 |
Doller (The Total Investment & Insurance Solutions)
India
Ratings and Research (Ind-Ra) believes India’s trade deficit will widen to a
four-year high of 6.4% of GDP in FY19 (USD178.1 billion). In FY18, merchandise
trade deficit stood at USD156.8 billion (6.0% 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. Even other
emerging market currencies are facing headwinds. Rupee has depreciated below
INR67/USD mark in May 2018 from the high of INR63.35/USD in January 2018.
The
following charts show the position on the trade deficit and the emerging
markets currencies’ movements. The
Total Investment & Insurance Solutions
Lately,
external trade has emerged as a critical component in India’s growth engine. At
its peak in FY13, trade accounted 55.8% of India’s GDP. However, post FY13,
scenario changed due to sluggish global growth and rising protectionism, says
Ind-Ra. 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%.
On the
import side, a 25.7% surge in petroleum/petroleum product imports coupled with
a 32.1% rise in gold, silver and precious stones imports, led to the overall
import registering a growth of 19.7% to USD459.7 billion in FY18. The
proportion of these two commodities in total import during FY14-FY18 was 41.4%,
points out Ind-Ra. The Total Investment
& Insurance Solutions
Organic/inorganic
chemicals and engineering goods exports registered a 10.0% year-on-year growth
to USD302.8 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. Trade with China witnessed a CAGR of 7.4% over
FY10-FY18, largely driven by imports. As a result, trade deficit with China
widened to USD57.9 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, observes the Ind-Ra report.
The
Ind-Ra report also highlights macro-economic trends in the Indian economy using
high frequency data on growth, inflation, trade balance, interbank liquidity,
credit offtake, interest and exchange rates.The Total Investment & Insurance Solutions
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