India's FY15 Trade Deficit Remains Contained, FTP to Boost Trade Dynamics Hereon

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India's March trade deficit rose to a four month high of USD 11.8 bn as the sequential uptick in imports on account of higher oil and gold imports, outweighed the rise in exports, at the end of the fiscal year.

On a cumulative annual basis, trade deficit widened marginally in FY15 to USD 140 bn from USD 137 bn in FY14, as tepid momentum of external demand more than counteracted the gains from declining oil prices.

India's FY15 Trade Deficit Remains Contained, FTP to Boost Trade

  • On the exports front, the marginal decline in FY15 is indicative of the downturn in global growth cycle, softening oil prices (including other commodities) and sustained appreciation of Rupee versus major trade partners. 
  • Owing to the correction in global oil prices, oil imports in value terms, contracted by a sharp 17.0% on an annual basis in FY15.
  • Meanwhile, gold imports rose in FY15 to the tune of 16.8% as restrictions on gold imports were eased by the policymakers
  • Growth in Non-Oil, Non-Gold imports, a lead indicator for domestic demand, improved albeit by 8% in FY15 after a contraction in FY14, indicating demand recovery underway

Looking at the year as a whole, FY15 marks the second consecutive year of external sector dynamics remaining in favour of India.

The sharp decline in crude prices allowed India's trade balance to remain contained, despite export momentum remaining tepid and demand for gold coming back into the economy.

The recently unveiled New Foreign Trade Policy for 2015-20 has adequately addressed the need of an underlying Common Economic Agenda running across policy program.

In this spirit, the government rightly aligned FTP with themes such as - Make in India, Digital India and Ease of Doing Business.

Further, the reduced frequency of subsequent revisions to FTP (now after 2.5 years instead of every year) will impart continuity to policy and less lobbying for frequent changes.

ASSOCHAM believes that the risks from slowdown in global growth can be countered to a large extent by the government's resolve to build a strong institutional export architecture and it's policy support for diversifying and enlarging India's export base to developing nations.

This stems from our analysis indicating global demand having a much larger role on India's exports, vis-à-vis currency levels.

With an anticipated improvement in external demand in H2 FY16, we expect India's current account deficit to moderate to 0.9% of GDP in FY16 vs. 1.2% in FY15.

GoodReturns.in

Read more about: trade deficit, assocham, imports
Story first published: Thursday, April 23, 2015, 12:52 [IST]
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