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January trade deficit narrows; imports down 11.4%

There’s cheer on Indian macro-economic front. The trade deficit has narrowed to USD 8.32 billion dollars in January versus USD 9.43 billion in the prior month.

Exports and imports have also declined for the month. While exports came down by 11.2 percent year-on-year and imports fell by 11.4 percent on a similar basis.

The trade gap in January last year was USD 9.45 billion. Gold imports in January this year grew by 8.13 per cent to USD 1.55 billion.

The highlight of the data, not surprisingly, is the sharp fall in oil imports. Those are down more than 36 percent year on year. Gold imports though rose significantly in January when compared to the previous month.

Tea, coffee, rice, tobacco and spice exports also recorded a negative growth in the month.

In an interview to CNBC-TV18, Aditi Nayar, economist, ICRA says that while the headline trade numbers look good, the contraction seen in non-oil imports is worrying.

Below is the verbatim transcript of the interview to CNBC-TV18.
Q: On the trade deficit front what are the numbers looking like, inline with what you were expecting?

A: The trade deficit is very much inline with what we were expecting. We had around 8-8.5 billion forecast. So, this is pretty much in that range. What I am surprised by though is some of the internals.

Oil imports are higher than what I had penciled in, net oil imports which is surprising. So, we have got a substantially larger volume of oil imports that seem to have come in, in the month of January.

At the same time like you pointed out gold imports have gone up but that is not a very huge amount particularly compared to last month it is just a marginal change. So, what is really interesting is that non-oil exports have contracted and in this month non-oil, non-gold imports have actually shown a very muted rise which is quite different as compared to the last few months data.

I haven’t had a chance to really figure out what it is that has slowed down as far as non-oil, non-gold imports is concerned because the composition of that would have a substantial impact on how we interpret it in terms of domestic demand slowing down or rising or whether it is investment that is picking up.

So, I still need to go through those details to be able to figure that out. Overall I would say that the fall in the trade deficit is prima facie good news but we should be worried about the fact that non-oil exports have contracted.

Q: What do you make of the headline export and import numbers, exports down 11.2 percent, imports down 11.4 percent?

A: When we takeaway the oil export number which had to fall because of the substantial correction in oil prices what we are left with is non-oil exports, as I was mentioning that has also contracted. This is an area of some concern.

So, we are going to have to go through the data to really see whether it is more of a commodity price impact on exports that is bringing this number down on a year on year basis or if it is something else in terms of sectors where growth had been robust uptil now, where we are seeing growth dissipating.

So, as far as non-oil exports is concerned I am unclear at this point in time as to the interpretation but the fact that the contraction is roughly around 3 percent year on year. So, that is a little bit of concern as to the projections that we make going forward particularly for 2015-16 in terms of what we see the overall export growth number looking like.

Q: So, USD 8.25 billion down 36.46 percent. Some analysts seem to have factored this in but what is your projection on oil imports going forward then?

A: So, I had factored in a smaller volume of net oil imports for this month and I am a little surprised by the uptake. I had a much lower number for net oil imports.

Q: What was the number that you had pencilled in?

A: I had a gross oil import of only USD 6.8 billion and the oil import is at 8.2, so roughly about almost a billion and a half higher on the gross oil import. So, we will have to see whether this is something that sort of settles in the next couple of months or is this really a one off payment which has led to this, maybe some Iran related (Interrupted)

Q: Which is what I was coming to-Is this a seasonal impact in that case or a quarterly impact?

A: It may not really be seasonal. I don’t know if it is a one off factor in terms of some big payment that might have been cleared but in the last couple of months we have trended to higher oil imports monthly than what we were seeing earlier in the year and so in that sense it may well be a reaction that now if retail prices of petrol and diesel having come off fairly substantially perhaps consumption is up. So, we will have to look into that in more detail.


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