Brief: India’s export to East Asia has increased substantially in FY17. This is a strong indication of India’s focus moving toward its eastern neighbors and is a culmination of the Prime Minister’s Act East Policy; Capital account, on the other hand, remains positive for the quarter so far. The net FDI inflows during April to May have stood at $5.2 billion in FY18 as against $2.6 billion the previous year.

Impact: Neutral

India’s export has recorded positive growth of 4% in June, 2017 and continued positive trend for the past ten months. Export of non-petroleum products account for nearly 88% in overall export. The category has expanded by 4.2%. Similarly, import has expanded by 18% for the said period. For past six months, imports are growing at above 10%. We believe that the robust growth in import is primarily driven by the import of precious metals. These commodities account for 8% in overall imports and have expanded by 80% in the month of June alone. Over the last four months, import of gold and silver has been growing at above 150%.

While considering region wise performances, India’s export to North-East Asia (China, Honk Kong, Taiwan, and South Korea) and ASEAN countries (Indonesia, Malaysia, Thailand, and Vietnam) has increased substantially in FY17. This is a strong indication of India’s focus moving toward its eastern neighbors and is a culmination of the Prime Minister’s Act East Policy. SMERA believes that the ASEAN push is an attempt to include India in the Asian supply/ value chains in order to meet the Make in India objectives.

As a result of higher growth in imports as compared to the exports, the trade deficit remains at $12.9 billion in June, 2017 despite an appreciating Rupee. SMERA was expecting the trade deficit to remain at $12.6 billion for the said period. The trade deficit has stood at $40 billion in Q1, FY18, which was $19 billion during the same period the previous year. Appreciation in Indian rupee is encouraging the importers and this phenomenon is on expected lines given a strong domestic demand. The higher trade deficit recorded during the early first quarter of FY18 indicates the CAD/GDP ratio to likely exceed 1.25%.

Capital account, on the other hand, remains positive for the quarter so far. The net FDI inflows during April to May have stood at $5.2 billion in FY18 as against $2.6 billion the previous year. Likewise, FII inflows have recorded $7.3 billion in FY18 as against $1.5 billion in FY17 (during April to May). The robust capital inflows show the foreign investors’ confidence on the Indian economy. SMERA believes stable macro-economic condition backed by business amiable reforms will encourage the foreign investors. Therefore, we expect the current trend in capital inflow to continue throughout the year supporting the Rupee’s current eminence.

Performance of external sector in past six months:

Source: Ministry of Commerce, SMERA Research

Region wise trade performance in FY17:

Source: Ministry of Commerce, SMERA Research