Goods Exports, Imports Slump, But Improving Goods, Services Trade Balances Bode Well For CAD: ICICI Securities
RBI data for April-May 2023 shows services exports decelerating to +7.6% YoY growth, while services imports declined.
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ICICI Securities Report
India’s goods exports declined 15.1% YoY in April-June 2023 (Q1 FY24), succumbing to the slump in global import demand from the U.S., Europe and China. Goods imports declined 12.7% YoY in Q1 FY24, and this caused the quarterly trade deficit to shrink 7.9% YoY to $57.6 billion.
Data from the Reserve Bank of India shows services exports decelerating to +7.6% YoY growth in April-May 2023, while services imports declined 0.4% YoY, resulting in a 40% YoY increase in the services-trade surplus to $23.77 billion.
With the incomes surplus still strong (because of remittances), the current account deficit is likely to be about 1% of gross domestic product in Q1 FY24, down from 2.1% in Q1 FY23, but higher than the 0.2% of GDP in Q4 FY23. The latter, though, reflects seasonality.
The goods trade deficit had soared in April-December 2022 amid a terms of trade shock, as the prices of key import commodities – crude-oil, edible oils, coal and fertiliser – had surged.
The commodity price surge has fully subsided now, and India is thus set to benefit from a positive terms of trade shock in FY24 while the West’s industrial recession (and China’s deceleration) cause commodity prices to remain subdued.
China’s weak domestic demand is a mixed blessing: while commodity prices stay low, China continues to dump numerous exports (including steel and chemicals) that it cannot sell at home, pressuring Indian competitors. Overall, however, India is on track to see its CAD moderate to 0.6% of GDP in FY24.
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