India's Trade Deficit Widens to Five-Year-High in June
New Delhi: India’s monthly merchandise trade deficit widened to over five year high of $16.60 billion in June on the back of a surge in crude import bill, stoking fear of a rise in current account deficit (CAD).
A trade deficit is the gap between a country's exports and imports.
Oil imports during June 2018 were valued at $12.73 billion, nearly 57% higher compared to the same period last year.
The trade deficit in June was nearly 14% higher compared to May. India's CAD yawned to $13.5 billion, or 2% of GDP, in the quarter ended December 2017, from $8 billion, or 1.4% of GDP, a year ago.
According to commerce ministry data, petroleum and crude products continued to inflate the import bill, followed by higher incoming shipments of coal and engineering machinery. However, imports of pearls and precious stones declined last month.
Trend in India’s merchandise trade deficit in recent years
| FY | Trade deficit ($bn) |
| 2017-18 | 156.8 |
| 2016-17 | 108.5 |
| 2015-16 | 118.5 |
| 2014-15 | 137 |
| 2013-14 | 138.59 |
Source: Commerce Ministry
A rising trend in India's CAD has caused some panic among foreign investors, triggering capital outflows. That has brought rupee under pressure. The Indian currency slipped below 69 against the US dollar last month, hitting an all-time low, despite market intervention by the Reserve Bank of India (RBI) to shore up the rupee.
The international crude oil market is again on an upswing on supplies tighten.
Investment bank JP Morgan on Friday revised upward by $9 a barrel its earlier forecast for average benchmark crude price in 2018.
Global investment research firms have forecast the rupee could soon breach the psychological barrier of 70 against the greenback.
CAD, a key barometer of macroeconomic stability for foreign investors, is especially vulnerable to oil price shock. The government needs permanent currency flows to cushion a potentially widening CAD.
Trend in India’s monthly merchandise trade deficit in 2018-19
| FY | Monthly trade deficit ($bn) |
| June | 16.60 |
| May | 14.62 |
| April | 13.72 |
Source: Commerce Ministry
These currency flows can come in the form of foreign direct investment (FDI) and foreign portfolio investment (FPI) in equity. Unfortunately, there are some signs of foreign investors exiting India due to concerns over the CAD.
According to market estimates, India could see permanent foreign currency outflow to the tune of of $45 billion in 2018-19, a level not seen since 2012-13.
In 2013, too, investors had panicked over India’s high CAD as western powers threatened to attack Syria, sending oil prices soaring. The rupee at the time fell by over 21% between June 3 and August 28, 2013.
This article went live on July thirteenth, two thousand eighteen, at thirty-six minutes past nine at night.The Wire is now on WhatsApp. Follow our channel for sharp analysis and opinions on the latest developments.
