IANS | 22 Jan, 2024
Even as merchandise exports are expected to remain under pressure
due to a slowing global economy, imports are also likely to cool off
from here on as crude prices come down amid concerns of a weak global
demand along with lower gold imports, says Sujan Hajra, Chief Economist
and Executive Director at Anand Rathi Shares and Stock Brokers.
This,
along with the services surplus due to falling imports, is likely to
indicate that the current account balance can improve in the near term.
Improved trade balance along with better capital flows will be a
positive for the rupee, Hajra said in a report.
Trade deficit
improved for the second consecutive month in December 2023 on the back
of higher sequential increase in exports over imports. Services trade
balance too improved as imports contracted.
For the second
consecutive month, trade deficit improved as the increase in exports
outpaced that of imports. The growth in exports was driven by core
exports with gold exports too increasing over November 2023.
Imports
too increased in December 2023 driven by higher non-oil non-gold
imports as well as gold, whereas oil imports remained flat, the report
said.
Services trade surplus improved in December 2023 after
dipping in November 2023 driven by a continued contraction in imports.
The peak of services exports is behind us with exports continuing to
contract as much of the advanced economies slows down.
India’s
merchandise trade deficit narrowed further to a 5-month low of $19.8
billion in December 2023 from $20.6 billion in November 2023. The
sequential correction was entirely on account of exports, which posted a
faster increase vis-a-vis imports, as per a report by Acuite Ratings
and Research.
Merchandise exports stood at $38.5 billion (13.5 per
cent MoM and 1.0 per cent YoY) in December 2023. Core exports rose to a
four-month high of $28.7 billion in December 2023 from $23.6 billion in
November 2023 driven by a prominent increase in engineering goods,
chemical products and Agri commodities.
Merchandise imports stood
at $58.3 billion (6.9 per cent MoM and -4.9 per cent YoY) in December
2023. Core imports rose to $38.0 billion from $34.6 billion in November
2023, led by sequential increase mainly in electronic goods imports
(+$2.9 billion).
Suman Chowdhury, Chief Economist and Head –
Research at Acuite Ratings & Research, said after the record high
trade deficit in October 2023, normalisation has continued to transpire
over the months of November-December 2023. This has been largely enabled
by a moderation in global commodity prices, despite the escalation of
geopolitical risks.
“From an outlook perspective, we continue to
believe that merchandise trade deficit in H2 FY24 would be wider in
comparison to H1 FY24, owing to sluggish growth in global trade volumes,
domestic export restrictions on select agricultural commodities and
India’s strategic advantage of importing relatively cheaper Russian oil
dissipating”, Chowdhury said.
“However, the recent downside on
commodity prices has offered incremental comfort to our past CAD view.
As such, we revise our FY24 current account deficit forecast lower to
$47 billion (from $67 billion earlier), at 1.3 per cent of GDP. Having
said so, tensions in the Red Sea region remain a developing story on
watch.
"Persistence or escalation of tensions could manifest more
materially over the coming months on India’s trade performance via
increase in shipping costs”, Chowdhury added.