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Business News/ Economy / India's trade deficit to hit $276 billion in FY25? Here's how $10 rise in oil prices will impact economy
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India's trade deficit to hit $276 billion in FY25? Here's how $10 rise in oil prices will impact economy

If crude oil prices remain in $80-90/barrel range, trade deficit should be $266 billion for FY25. It could go up to $276 billion if oil prices move up by another $10 per barrel.

India's trade deficit could hit $276 billion for FY25 if crude oil hovers between $90-$100 Photo: BloombergPremium
India's trade deficit could hit $276 billion for FY25 if crude oil hovers between $90-$100 Photo: Bloomberg

India’s goods trade deficit narrowed by nearly 17 per cent in March 2024 compared with the previous month, as imports fell steeply, while exports rose only marginally. The deficit fell to $15.6 billion in March, down from $18.71 billion in February, which is the lowest it's been in 11 months—the last time the deficit was narrower was in April 2023 when it came in at $14.44 billion.

However, high crude oil prices threatens to widen the trade deficit in the current fiscal. According to a research report by ICICI Bank, if crude oil prices remain in $80-90/barrel range, trade deficit should be $266 billion for FY25. It could go up to $276 billion if oil prices move up by another $10 per barrel.

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India's trade deficit in FY24

For FY24 as a whole, India's merchandise exports stood at $437.06 billion, down from $451.07 billion during the previous fiscal. Goods imports fell to $677.24 billion from $715.97 billion recorded during the same period.

India's service exports stood at $339.62 billion in FY24, up from $325.33 billion in the previous fiscal while imports fell to $177.56 billion from $182.05 billion in the same period. The overall trade deficit, including merchandise and services, shrank to $78.12 billion in FY24 from $121.62 billion in FY23.

During FY24, the main drivers of merchandise export growth included electronic goods, drugs and pharmaceuticals, engineering goods, iron ore, cotton yarn/fabric, handloom products, and ceramic products & glassware, the commerce ministry said. However, the overall export of refined petroleum products and jewellery declined during FY24.

How crude oil prices impact India's trade deficit?

Merchandise trade deficit narrowed in March which can be attributed to sharp fall in gold imports. The non-oil-non-gold deficit is also lower at $1.5 billion on account of sharp pick-up in non-oil exports. FY24 trade deficit fell to $240 billion from $265 billion FY23, led by lower oil and non-oil-non-gold imports. 

The current year has begun with much higher oil prices, which imply India’s trade deficit could be higher if oil prices sustain at current levels. ‘’Our base case is for oil prices to remain in $80-90/bbl during the year thus implying a trade deficit of $266 billion and current account deficit (CAD) of 1.1 per cent of the gross domestic prices (GDP),'' according to analysts at ICICI Bank.

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‘’However, if oil prices do inch up by $10/barrel, then trade deficit would be higher by $10 billion (net impact) and driving CAD too higher by similar amount. At the margin, higher oil prices and stronger dollar is negative for INR,'' said the analysts.

Meanwhile, conflicts in Ukraine and West Asia have threatened to push up commodity oil prices, leading to greater inflationary pressures. Commerce secretary Sunil Barthwal said that India's trade, especially exports, fared better despite predictions of a decline in global trade. 

"This resilience is noteworthy, especially considering the potential for conflicts to erupt anywhere, anytime. We are used to these regional conflicts. It started with the Ukraine-Russia war, which was much larger in terms of impact on trade. Then the Suez Canal issue came up and now Iran-Israel conflicts,'' said the minister.

‘’Whenever these conflicts happen, we start monitoring the trade and start the stakeholder consultation to find a solution for it. The policy intervention will come only after the assessment of its impact on trade. Based on the exercise and whatever is needed, the government will take remedial action to address the issue,'' added Barthwal.

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ABOUT THE AUTHOR
Nikita Prasad
Nikita covers business news and has been producing news on digital platforms since 2018. She writes on economy, policy, markets, commodities, industry. Her core areas of interests include infrastructure, energy, oil and gas, railways, and transport/mobility. She has worked for business news channels like Moneycontrol, NDTV Profit, and Financial Express in the past. If you have story ideas/pitches/reports or quotes/views to share, reach her at nikita.prasad@htdigital.in.
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Published: 16 Apr 2024, 09:24 PM IST
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