Weak oil price helps cut import costs

India’s exports and imports are expected to decline to US$332-$337 billion and US$493-498 billion in FY2020 from US$337.2 billion and US$517 billion, respectively in FY2019, says ICRA, a Moody’s Investors Service Company, in its latest report on Indian economy.

Accordingly, the merchandise trade deficit is likely to narrow considerable to about US$160-165 billion in FY2020 from US$180.3 billion in FY2019.

The anticipated narrowing in the merchandise trade deficit in FY2020 reflects the decline in merchandise imports on account of the subdued global commodity prices and shrinking in gold demand at prevailing prices.

It also reflects muted domestic consumption and industrial demand, rather than a healthy trend in merchandise exports, added the report.

ICRA expects the services surplus to improve mildly to US$83-85 billion in FY2020 from US$81.9 billion in FY2019.

The initial data released by the Commerce and Industry Ministry indicated that merchandise exports declined by 0.7% to US$52.4 billion in October-November 2019 from US$52.7 billion in October-November 2018, led by a considerable 13.8% dip in oil exports (to US$7.7 billion from US$9.0 billion), even as non-oil exports recorded a mild 1.9% rise (to US$44.6 billion from US$43.8 billion).

The YoY decline in the value of oil exports was driven by the substantial 16% correction in the price of the Indian crude oil basket to US$61.1/barrel in October-November 2019 from US$72.8/barrel during October-November 2018.

ICRA is cautiously optimistic that the recent YoY rise in non-oil merchandise exports may sustain in December 2019-February 2020, although an unfavourable base effect may result in a contraction in March 2020.

Overall, ICRA expects merchandise exports to decline on a YoY basis by 0-2% in FY2020, driven by a contraction of ~1.5-2.0% in oil exports (assuming an average oil price of US$64.5/barrel), and ~0.5-1.0% in non-oil exports.

ICRA expects merchandise imports to contract by 4-5% in FY2020. While a pickup in the prices of crude oil and gold, as well as the base effect, may arrest the pace of contraction in imports in the coming months, the impact of this on the overall trade deficit is likely to be limited.

The relative weakness in commodity prices, and subdued consumption and investment demand are expected to restrain the growth of non-oil non-gold imports in FY2020. fiinews.com