comScore
Active Stocks
Fri Dec 01 2023 15:59:55
  1. Tata Steel share price
  2. 129.95 1.56%
  1. Reliance Industries share price
  2. 2,393.45 0.72%
  1. NTPC share price
  2. 269.05 2.97%
  1. ICICI Bank share price
  2. 946.35 1.19%
  1. HDFC Bank share price
  2. 1,555.5 -0.22%
Business News/ Markets / Mark To Market/  With shrinking trade deficit, India’s slowdown battle has got prolonged
Back Back

With shrinking trade deficit, India’s slowdown battle has got prolonged

Trade deficit in Sep slipped to a seven-month low of $10.9 billion as exports, imports saw the steepest fall in three years
  • What’s more, after the corporate tax cut bonanza, the clamour for personal income-tax reductions to boost demand has got louder
  • Weak domestic demand will keep imports tepid, so India’s trade deficit will broadly hover around these levels, say economists.Premium
    Weak domestic demand will keep imports tepid, so India’s trade deficit will broadly hover around these levels, say economists.

    India’s latest trade data reading is yet another reminder of anaemic economic growth. Recently, the International Monetary Fund’s chief, Kristalina Georgieva, said the impact of global slowdown was more pronounced in India. Indeed, the country’s subdued export growth mirrors that pain. However, now with a broad-based decline in imports as well, India’s battle to reverse its domestic slowdown could be prolonged.

    Graphic by Naveen Kumar Saini/Mint
    View Full Image
    Graphic by Naveen Kumar Saini/Mint


    “Slowing domestic demand is primarily driving this (decline in imports), demonstrated by contractionary core import growth, although high gold prices are also playing a role. Ensuing weak data on growth indicators suggest that the risks of a more protracted slowdown remain elevated, which should keep core import growth low," brokerage house Nomura Inc. said in a report on Wednesday.

    In September, India’s trade deficit slipped to a seven-month low of $10.9 billion as exports and imports witnessed the steepest fall in three years. Merchandise exports shrank 6.57% to $26 billion, while imports dropped 13.9% to $36.9 billion. Category wise, both consumption and capital-oriented imports witnessed sharp declines in September.

    Given that monthly growth rates are volatile, analysts at Edelweiss Securities Ltd have analysed the trade data on a trend (three-month moving average) basis. It shows that non-oil exports dipped 4% year-on-year despite an extremely supportive base. Further, growth in labour-intensive segments remained quite weak, and weakness in imports is broad-based, with non-oil and non-gold imports contracting for the 11th straight month.

    Weak domestic demand will keep imports tepid, so India’s trade deficit will broadly hover around these levels, say economists. A revival in both domestic and global demand largely depends on how soon the results of monetary easing by global central banks, including the Reserve Bank of India (RBI), are visible.

    Expectations are that RBI will cut interest rates by another 25 basis points on 5 December. It should be noted that since February, RBI has trimmed key policy rates by 135 basis points to hit a multi-year low of 5.15%. However, when it comes to demand recovery on the back of a trade truce, hopes are not very high as far as the complete resolution of the US-China trade war is concerned.

    What’s more, after the corporate tax cut bonanza, the clamour for personal income-tax reductions to boost demand has got louder. Analysts at Bank of America Merrill Lynch expect the government to cut income tax to stimulate demand if the ongoing Diwali festival demand turns out to be really weak.

    Meanwhile, a narrowing trade deficit will help contain India’s current account deficit. But that would come at the cost of a deep domestic demand slump, which doesn’t augur well for the country’s long-term economic growth.

    Milestone Alert!
    Livemint tops charts as the fastest growing news website in the world 🌏 Click here to know more.

    Catch all the Elections News, Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
    More Less
    Updated: 21 Oct 2019, 07:00 AM IST
    Next Story footLogo
    Recommended For You
    GENIE RECOMMENDS

    Get the best recommendations on Stocks, Mutual Funds and more based on your Risk profile!

    Let’s get started
    Switch to the Mint app for fast and personalized news - Get App