Lower non-oil imports lead to narrowing of goods trade deficit

The country’s trade deficit narrowed in September as imports plunged and exports continued to slide amid slowing demand in China and the west. Export of goods slipped marginally by 2.59 per cent to $34.47 billion compared to $35.39 billion in September last year, while imports fell by a steep 15 per cent to $53.84 billion as against $63.37 billion a year earlier. Consequently, trade deficit fell to $19.37 billion, down over 30% from $27.98 billion a year ago, according to the latest data from the Union Commerce ministry. The September goods trade deficit narrowed to $19.4 bn, led by a sharp fall in non-oil imports. Services surplus increased to $14.5 bn. Experts maintain their FY24 CAD/GDP estimate at 1.5 per cent. Risks to the external sector have increased, amid rising geopolitical tensions and global rates expected to stay higher for an extended period. Analysts hope USD-INR to trade in the range of 82.75-83.50 over the near term. Exports in September moderated to $34.5 bn, led by a fall in oil exports to $6.5 bn. Non-oil exports moderated relatively less to $28 bn, reflecting the steady global growth until now. Non-oil exports were propped up by engineering goods, gems and jewellery, and drugs and pharmaceuticals. In H1, engineering goods, gems and jewellery, and chemicals remained the top exports, though lower than in the year-ago period.

September imports fell by chemical materials and gold. September imports fell sharply to $53.8 bn due to a fall in non-oil imports to $39.9 bn. This was mainly led by a sequential fall in imports of chemical materials, gold, machinery, and iron and steel. In H1, electronics, machinery and gold continued to prop up non-oil imports. Overall, September trade deficit narrowed to US$19.4 bn. India’s merchandise trade deficit compressed considerably to $19.4 billion from $28 billion in the year-ago month, with a sharp contraction in imports reflecting the impact of lower commodity prices, says an Icra analysis. Interestingly, robust services are likely to be in surplus, which increased to $14.5 bn, riding on an increase in exports to $ 29.4 bn and moderation in imports to $14.9 bn. Analysts hope that services surplus in the current fiscal will remain robust around $144 bn, though risks to net exports of software and non-software services are skewed toward the downside, given a gradual slowdown in relevant segments in developed markets.

Kotak Institutional Equities sees increasing external sector risks from the intensification of geopolitical conflicts impacting oil prices. It is important that domestic growth remains robust relative to global growth keeping non-oil imports firm relative to non-oil exports. Analysts expect tailwinds to CAD to have peaked in Q1 and maintain their FY24 CAD/GDP estimate at 1.5 per cent. They continue to see USD-INR in the range of 82.75-83.5 over the near term, with a shift toward 81.5-83.5 in 6-12 months, once global uncertainties subside.