A high base effect and falling outbound trade of major exchange earners such as gems and jewellery and engineering goods nearly wiped out export growth in November, which came down to a marginal 0.8 per cent.
Outbound trade rose by the smallest margin so far in the current financial year to $26.5 billion. Compared to this, growth was recorded at 17.86 per cent in October. Exports contracted just once this year, in September. Despite suggesting that this was because of global trade headwinds, the figure had raised eyebrows among policymakers since the fall had come even as the rupee depreciated against the dollar.
On the other hand, a similar slower pace of growth on the import side effectively shrunk the trade deficit in November. The trade deficit was $16.67 billion in the latest month, down from $17.13 billion in October. “We expect India’s current account deficit to rise to $18-20 billion in Q3FY19 from $14 billion in Q3FY18, while remaining stable at the level recorded in Q2FY19,” Aditi Nayar, principal economist at ICRA, said.
The second largest component of the import bill — gold — saw a sharp drop in inbound shipments as imports fell by 15 per cent in October to $2.75 billion in November. The rate of fall was however much lower than the 43 per cent contraction in October.
The gold industry continues to see volatility as imports had risen in July after remaining in negative territory for six consecutive months. Imports of the shiny metal had remained low since the Rs143-billion Nirav Modi scam earlier this year. Experts said this may have been a consequence of the considerable restocking that took place over the previous quarter, and may also have been led by the late start to the festive season. However, the largest component of the import bill — crude oil — saw a slower rise in October, in line with expectations. Crude imports rose by more than 41 per cent in October to $13.49 billion, down from the 52 per cent growth seen in the previous month. Global crude prices started reducing from early November and a supply glut is expected to stay as sanctions hit continue to pump out oil, while the US adds fracking capacity.
If crude oil prices remain relatively stable around current levels, the merchandise trade deficit is likely to average a lower $14 billion in the remaining months of FY19, compared to $16 billion in the first eight months, Nayar added.
Non-oil non-gold merchandise imports, showcasing industrial demand, also fell by 5 per cent in November, down from a steep rise of 20 per cent in October to $26.92 billion.
Exports hang on to growth
Despite this, receipts from processed petroleum exports continued to swell, albeit at a slower pace. It rose by 42 per cent to $5.14 billion in November, down from the nearly 50 per cent rise in October.
Another major export earning sector - gems and jewellery - again lapsed into the negative zone as shipments shrank by nearly 17 per cent, after the 5.48 per cent rise in the previous month. The sector had returned to the growth charts in June after months of contraction.