Merchandise trade deficit widened further in July to scale a 62-month high of $18 billion, thanks to an elevated net oil import bill and an almost 41 per cent jump in gold purchases from overseas after a contraction in the previous six months, showed official data released on Friday. In June, the trade deficit had hit $16.6 billion.
Growing trade imbalance would worsen current account deficit (CAD). Already, the rupee’s depreciation has raised fears of costlier imports while the country’s ability to take advantage of a weak currency to improve exports remains limited.
According to Icra, the CAD may worsen to around 2.7 per cent of GDP this fiscal, against 1.9 per cent a year earlier.
Growth in imports touched a 14-month high of 28.8 per cent in July to $43.79 billion. Exports growth slowed sequentially but still touched a decent 14.3 per cent in July to $25.77 billion, as a rise in oil prices helped boost outbound shipment value. Petroleum exports jumped 30 per cent to $3.91 billion in July. Gems and jewellery exports made a comeback with an almost 25 per cent jump while chemicals and pharmaceutical products registered decent expansion. However, engineering goods, a prime driver of India’s outbound shipments in recent months with double-digit growth, recorded only a 9.8 per cent rise in July.
The fact that growth in non-oil and non-bullion exports slowed to just 10 per cent in July, against 15.1 per cent in the previous month, could worry policymakers. For the first four months of the current fiscal, non-petroleum and non-gems and jewellery exports grew 12.7 per cent from a year earlier, although overall goods exports rose 14.2 per cent during this period.
A weak rupee since the US Federal Reserve hiked interest rates by 25 basis points in June and the crisis in Turkey might somewhat brighten export prospects. The rupee has breached the 69-mark against the greenback. But analysts say the key to any improvement in export competitiveness will be how much the currencies of its peers depreciate against the dollar in such a scenario. Also, given the structural problems being faced by exporters (high costs of logistics, raw material and wages etc), limit the country’s ability to benefit much in the short term. Although it’s too early to gauge the impact of a sharp hike in minimum support prices (MSPs) of some crops such as cotton on exports of agri and allied sector items, higher raw material prices will further dent India’s competitiveness.
More importantly, with the US and China having targeted each other’s goods in a fresh escalation of a global trade war, India’s exports, like that of many others, could come under pressure. —FE