Impact: Positive (Exchange rate, GDP growth) Negative (Trade Deficit, CAD)

Brief: The trade number for January, 2019 released by the Ministry commerce indicates a sign of improvement in India’s Current Account Balance. In the reference period, exports have expanded by 3.7%. This is better performance compared to what the December augured with 0.3%. Overall imports, on the other hand, remained stable with 0.02% growth during the reference period. Due to this weak growth in imports, the trade deficit stands at of $14.7 billion in January, 2019. Notwithstanding, since the monthly trade deficit exceeded $17 billion for some months in the current financial year on account of higher crude prices, overall CAD has increased to 2.5% of GDP in Q3, FY19. This figure was just around 1% a year earlier. Considering the current improvements, we expect the CAD to GDP ratio to stand at around 2% in Q4, FY19.

The trade number for January, 2019 released by the Ministry commerce indicates a sign of improvement in India’s Current Account Balance. In the reference period, exports have expanded by 3.7%. This is better performance compared to what the December augured with 0.3%. From a sub-category level perspective, export of petroleum products, on account of lower oil price, has contracted by (-) 19.36% in January, 2019, which is lowest over the past three years. Manufacturing goods category, on the other hand, has expanded at a healthy rate of 8.03%.

We note that a cheaper Indian Rupee has benefited the Indian manufacturing to an extent. The USD-INR currency pair has dropped to 71.1 in January, 2019 as against 63.6 a year earlier.

Overall imports, on the other hand, remained stable with 0.02% growth during the reference period. A breakup in overall imports shows that as with exports, crude oil imports have dropped by (-) 3.6% and manufacturing goods by (-) 1.4%. However, import of precious metal expanded by 44% during the month, helping the overall import growth trajectory to remain positive.

Due to this weak growth in imports, the trade deficit stands at of $14.7 billion in January, 2019. Notwithstanding, since the monthly trade deficit exceeded $17 billion for some months in the current financial year on account of higher crude prices, overall CAD has increased to 2.5% of GDP in Q3, FY19. This figure was just around 1% a year earlier. Considering the current improvements, we expect the CAD to GDP ratio to stand at around 2% in Q4, FY19.

Trade Performance: