Falling rupee to widen FY19 trade deficit to 4 year high of 6.4% of GDP, says India Ratings

By: | Published: May 10, 2018 6:14 PM

Ballooning trade deficit, rise in crude oil prices, coupled with the expectation of the US Fed hiking its rate further is putting pressure on the rupee that will widen FY19 trade deficit to 4-year high of 6.4 percent of GDP or $178.1 billion, said a report.

New inflation index for 10 services to be released in June as trialThe trade deficit was recorded at 6.8 billion or 6 percent of GDP in FY18 due to rise in oil and gold imports.

Ballooning trade deficit, rise in crude oil prices, coupled with the expectation of the US Fed hiking its rate further is putting pressure on the rupee that will widen FY19 trade deficit to 4-year high of 6.4 percent of GDP or $178.1 billion, said a report. “Widening trade deficit, escalation in commodity prices, particularly oil, coupled with the expectation of the US Federal Reserve raising its rate further, is exerting pressure on the rupee. Even other emerging market currencies are facing headwinds. Rupee has depreciated below INR67/USD mark in May 2018 from the high of INR63.35/USD in January 2018,” India Ratings report said.

The trade deficit was recorded at $156.8 billion or 6 percent of GDP in FY18 due to rise in oil and gold imports. The estimates released by the Indian Ratings report come amid depreciation in the rupee against the dollar, wherein it has lost over 5 percent to breach the Rs 67-mark to the dollar.

The external trade has emerged as an important component in the growth engine of India. The external trade accounted for 55.8 percent of India’s GDP in FY13. Nevertheless, scenario changed due to slowdown in global growth and rising protectionism post FY13. As a result, contribution of trade to India’s GDP declined with private consumption and government spending supporting the growth momentum. Based on FY18 estimates, trade contribution to economy decreased to 40.6 percent.

“On the import side, a 25.7% surge in petroleum/petroleum product imports coupled with a 32.1% rise in gold, silver and precious stones imports, led to the overall import registering a growth of 19.7% to USD459.7 billion in FY18. The proportion of these two commodities in total import during FY14-FY18 was 41.4%,” the Ind-Ra report said.

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