Trade deficit narrows to $17.4 bln in Aug from $18.2 billion in July

  • 17-Sep-2018
  • Trade deficit narrows to $17.4 bln in Aug from $18.2 billion in July

A faster rise in exports and slightly slower growth in inbound shipments led to India's trade deficit reducing in August from a six-month high in July.

The trade deficit in August was $17.4 billion, compared to $18.2 billion in July. This was due to slower growth in the crucial crude oil import bill, which rose by 51 per cent in August to $11.83 billion, lower than the 57 per cent rise in July. This happened despite the global value of crude oil remaining northbound.

As a result, the rate of rise of overall imports also stymied a little in August, when inbound trade grew by 25.41 per cent to $45.24 billion. This happened for the first time in 2018-19, prompting policymakers to suggest that a more balanced trade scenario was on the horizon. However, economists say it remains uncomfortably high, suggesting the current account deficit is likely to cross 3 per cent of the nation's gross domestic product (GDP) in the second quarter of the current financial year.

India imported gold worth $3.63 billion in August, with inbound trade shooting up by more than 90 per cent. This is more than the 40 per cent rise in July, after remaining in negative territory for six consecutive months.

"Unless commodity prices recede appreciably from the prevalent levels, Icra expects the CAD to widen to $72-77 billion (2.8 per cent of GDP) in 2018-19 from $48.7 billion in 2017-18 (1.9 per cent of GDP), posing a key macroeconomic concern," said Aditi Nayar, principal economist at rating agency Icra.

The growth of non-oil non-gold merchandise imports also remained in double digits in August, rising by 12.8 per cent as inputs, such as machinery, coal, chemicals, fertilisers, iron and steel, non-ferrous metals, and electronic goods, poured in. Graph Experts predict India's oil bill will continue to rise in the current financial year as external pressures, such as the fall-out of the Iran deal and a possible cut in production by oil producers, might increase prices.

Exports continue to rise

However, India continued to take advantage of the rising global crude oil prices on the exports side, as receipts from processed petroleum exports swelled by 31.76 per cent to 3.81 billion. This was slightly higher than the 30.08 per cent growth rate in July. Another major export earning sector, gems and jewellery, saw shipments rise by 23.95 per cent, lower than the 24.62 per cent growth rate in July. The sector had returned to the growth charts in June after months of contraction.

Among other major sectors, engineering goods exports rose by 21.23 per cent, up from the 9.09 per cent growth rate in July to ship out merchandise worth $7.23 billion. Pharmaceutical exports rose by 18.21 per cent in August to $1.68 billion, higher than the 2.2 per cent growth rate in July. However, there were no signs of built-up stress reducing in the labour-intensive sector of apparels. Export of readymade garments continued to contract in August, going down by 3.35 per cent. Industry experts pointed out that the sector has seen a downturn since October, 2017.

Of the 30 major product groups, 17 recorded growth in August, down from 21 a month ago.

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