Rupee's Fall To Push Trade Deficit To 6.4% Of GDP In FY19: India Ratings Report

The continuous free-fall in the domestic currency that hit a 15-month low and breached the level of 67 against dollar early this week is feared to push trade deficit to US$ 178.1 billion or 6.4 per cent of GDP in FY 2018-19, the highest since 2014.

In fiscal ended March 2018, the trade deficit stood at US$ 156.8 billion or 6 per cent of GDP.

India Ratings in its report on Thursday said, "Trade deficit will widen to a four-year high of 6.4 per cent of GDP in FY19 due to rising crude oil prices as well as gold imports."

Also there are other concerns besides the widening of trade deficit that will further pressurize rupee such as surge in commodity prices, in particular crude, and the expectations of interest rate hike by the US Federal Reserve.

In FY18, the contribution of trade to India's GDP sink to a low of 40.6% as against the high of 55.8% reached in FY13. This was primarily due to weak performance in exports market as well as increasing protectionism.

All of the commodities including the precious yellow metal, petroleum products as well as silver and other precious stones saw a huge spike in imports which pulled the imports for FY18 higher by 19.7% at US$ 459.7 billion.

The report by the ratings agency further added that the RBI's decision to withdraw letter of undertakings (LoUs) is unlikely to hurt the overall exports sector performance substantially.

It said LoU ban will have an impact on export items for which intermediary or input items are imported as it increases import financing cost. The report said the worst hit from the LoU or Letter of Credit ban will be gems and jewellery sector.

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