India’s foreign trade moderated towards the end of FY19. It prompted the monetary policy committee of the Reserve Bank of India to send a worry signal in its April meeting.
But as imports moderated faster than exports, as Chart 1 shows, it helped restrict growth in the trade deficit, reveals Chart 2. Growth in imports dropped from 21 per cent in FY18 to 9 per cent in FY19.
While non-oil and non-gems and jewellery exports grew as fast as overall exports, non-oil non-gold imports grew slower than overall imports in FY19, as Chart 3 indicates. Chart 4 further corroborates this, showing that gold imports grew by a staggering 31 per cent in March 2019.
But if we look at the monthly data on trade, a clear moderation is seen in the second half of FY19, when trade grew in single digits. But more prominently, imports contracted by more than 4 per cent in February 2019, strongest in the financial year, shows Chart 5.
This had a positive impact on the current account deficit, which is estimated to get restricted to 1.2 per cent of gross domestic product (GDP) in Q4 FY19, from nearly touching 3 per cent in Q2, as demonstrated by Chart 6.
Chart 7 shows that the rupee strengthened along the fourth quarter, the period in which India experienced a net inflow of foreign capital. Protectionism has been cited as a top concern by global agencies. Chart 8 shows how the share of duty-free imports reduced, while average import duty rose in India and China over time.
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Compiled by BS Research Bureau