Impact: Negative

Brief: Fall in value of Indian rupee against the US dollar has made imports expensive. Trade deficit has therefore reached $18 billion in July 2018 - highest in over five years.

India's exports and imports have been growing at a robust rate (double digit) for the past three months. In July 2018, exports have expanded by 16% and imports by 28%. Two major factors influencing the trade volume in recent months are higher oil price and depreciating rupee. As a result, trade deficit has reached the $18 billion level in July, 2018, highest recorded monthly number in over 5 years.

Trade deficit for manufacturing segment has reached to $9.5 billion on account of weaker domestic currency. This puts tremendous pressure on corporate input costs in turn impacting the latter's earnings from exports as well - thus worsening India's current account balance. Moreover, higher input costs will further fuel the dreaded inflation rate stoking strengthening interest rate anxiety.

Country wise export/import data shows that India's imports from Iran has been growing above 90% in FY19 (YTD) as the latter is offering oil at a discounted rate to offset American led sanctions. On same lines, India's trade with China has also witness some changes. India's imports from the northern neighbor has dropped by (-) 2.6% during the reference period, whereas exports have posted a robust growth of 56%. Due to the current trade war with the US, Asia's largest economy has been changing its trade priorities and focusing on the Asian region. India has been a major beneficiary of this development as its exports to China have been witnessing strong growth over the past few months.

India's Trade Performance