BY TIOL News Service

NEW DELHI, MAY 10, 2018:  INDIA Ratings and Research (Ind-Ra) believes India's trade deficit would 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 Rs 67/USD mark in May 2018 from the high of Rs 63.35/USD in January 2018.

The report stated that the contribution of trade to India’s overall GDP rose rapidly post the liberalisation of Indian economy. It peaked at 55.8% in FY13 but declined since then, as the global growth momentum slowed. It also highlighted that post the global financial crisis, China emerged as the key new trading partner for India. On the other hand, trade with European countries grew at a relatively slower pace. Trade balance with China has been in deficit due to increase in imports. The bilateral trade deficit widened to USD 57.9 billion from USD 19.2 billion in FY 2010.

It further stated that contribution of trade to Indian economy witnessed subdued pace from FY 2013. Trade accounted 39.8% of India’s GDP, as against world economies where trade contributes 56.4% (2016). Ind-Ra believes trade contribution to GDP would increase in FY19. Global demand has a bearing on India’s export performance. The top five countries, accounting over half of India’s exports grew at slower pace over 2014-2016. The IMF expects growth recovery for these economies to set in 2018 onwards, although would be gradual. Growth recovery in the top three export destinations in 2018 is likely to have a favourable impact on the Indian exports growth.

After peaking at USD 190.3 billion in FY 2013, India’s trade deficit declined aided by softening global crude prices. This trend reversed in FY18, as imports grew 19.7% while exports growth was 10%, resulting in a trade deficit of USD 156.8 billion. Rising commodity prices, especially oil is likely to exert pressure on trade balance in FY19. Trade deficit surged on the back of an uptick in both petroleum and gold/gems jewellery-based deficit. Petroleum deficit, measured as a difference between value of imported crude petroleum and exports of petroleum products rose to USD70.2 billion in FY 2018. Similarly, gold, silver, gems and jewellery balance deficit rose to USD 28.7 billion in FY 2018.

China emerged as India’s leading trade partner driven by imports. India’s largest imports are now from China, outpacing imports from the European countries. Key imports from China comprise telecom instruments, electronic components and computer peripherals. Ind-Ra expects this import pattern to continue in the near term. While merchandise trade deficit has been on a widening trend, net services exports stood at USD 63 billion in FY 2018. GST collection rose above the Rs 1 trillion mark in March 2018 (collected in April 2018). However, the sustenance of this buoyancy needs to be assessed since the last month of financial year typically witnesses increased compliance and payment of arrears.