India’s current account deficit (CAD) woes seem to be abating fast with latest macroeconomic data indicating an improvement in exports amidst declining gold imports.
Foreign trade data for the month of September came in much better than expected with trade deficit shrinking to a two-and-a-half-year low of $6.7 billion, compared with $10.9 billion in August.
Exports recorded an 11.15% jump in dollar terms last month to $27.7 billion, mainly on the back of improving global demand and improved competitiveness led by currency weakness.
This is the third consecutive month of double-digit exports growth after the jump of 11.6% and 13.0% seen in July and August, respectively.
Imports, on the other hand, fell a sharp 18.1% to $34.44 billion in September on account of a near-80% drop in imports of precious metals (gold and silver) to $0.8 billion and a 5.94% drop in oil imports to $13.19 billion.
The lower CAD also bodes well for the rupee, believe experts.
“Expectations of improvement in the current account and funding are materially important for Indian rupee. We remain short USD/INR through the one-month NDF, looking for a move to 58,” economists at Morgan Stanley wrote in a note last week.
Indranil Pan, economist at Kotak Mahindra Bank, though, said the September trade numbers were marginally lower than their estimates of $8 billion.
The cumulative trade deficit for September quarter now stands at $29.95 billion, nearly 41% lower than the corresponding figure of $51.47 billion in the June quarter.
Economists believe the sharp reduction in trade deficit will result in the current account deficit narrowing sharply in the second quarter. Better still, there is a likelihood of CAD for the whole fiscal coming in much lower than government’s estimate of $70 billion.
CAD had printed at $21.8 billion, or 4.9% of GDP, in the quarter ended June.
Devendra Kumar Pant, chief economist at India Ratings, believes it will fall to around 1% of GDP in the quarter ended September.
Pan believes CAD will come in at $61 billion for this fiscal, which amounts to 3.4% of the GDP – well below the government’s projection of 3.7%.
“Exports in the second half are likely to be on a better plank even though the high run rate seen over the last few months cannot be sustained. Imports, too, are likely to see some pick-up due to gold demand rising in the next few months, but will be still lower than the last fiscal,” he said.
Shubhada Rao, chief economist at Yes Bank, believes that external sector vulnerability seems to have been contained and this, in turn, will lead to CAD coming in lower than their estimates of $60 billion, or 3.2% of GDP.
Predictably, the upbeat trade data numbers lifted the mood of the industry and markets.
“As India’s trade deficit has shrunk by over 60% in September and by about 13% in the first half of this fiscal, it would help contain the current account deficit. Provided the current efforts continue, it may even be possible to exceed this year’s export target of $325 billion,” said Naina Lal Kidwai, Ficci president, and HSBC India head.
The stock markets ended the day with gains of 1.33%, with the Sensex gaining 265.65 points to close at 20249.26 and the Nifty ending the day at 6007.45, up 79.05 points. To be sure, all the sectoral indices on BSE, barring consumer durables, closed in green with realty (up 4.27%), healthcare (1.88%), banking (1.88%) and capital goods (1.86%) rising the most.
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