The recently published foreign trade data (see
here) further confirmed the persisting slowdown in Indian economy.
As per the data, the non-oil non-gold imports during
April-December 2019 period contracted ~8% yoy. The oil import in the same
period was down ~12% yoy. If we consider ~17% rise in oil prices during this
period, the fall in volume of oil import is much higher. Overall the
merchandise imports contracted ~9% yoy in USD terms and ~8% yoy in INR terms
during the first nine months of current fiscal.
In the nine month period during April-December 2019, the
merchandise exports were lower by ~2% yoy. During this period non-oil non-gems
& jewelry exports were almost flat yoy.
The services exports (up ~5.6% yoy) and imports (up ~7.5% yoy)
during nine month period April-December 2019 have however recorded decent
growth as compared to the merchandise trade.
Consequently, the trade balance is much lower as compared to the
previous year. The overall trade balance for April-December 2019-20 is
estimated at USD 57.66bn as compared to USD 89.46bn in April-December 2018-19.
As per the latest data published in September 2019, the current
account deficit (CAD) of India was USD6.3bn or 0.9% of GDP in the 2QFY20 (vs 2%
of GDP in 1QFY20). Given the lower trade deficit and decent capital flows, the
CAD might have shown further improvement in 3QFY20. To some extent, the
strength in INR could be attributed to this factor.
However, the moot point is whether the market should cheer the
improved CAD data and consequently stringer INR or be worried about (a) the
falling imports, especially engineering and consumer goods imports which
implies slow down in consumption and (b) stagnant to contracting exports in the
entire post global financial crisis (GFC) period!
Another aspect about the economic slowdown that needs to be
examined is the contribution of the each of the following factors:
(a) The administrative,
procedural and legislative changes like GST, IBC, UBI, RERA etc that are aimed
at supporting higher growth in mid to long term but may have checked the growth
momentum in the short term.
(b) The social policies of
the government that are aimed at promoting national security and integrity but
may have triggered an environment of mistrust and non-cooperation.
(c) The cyclical slowdown
in demand after large capacity expansion and fiscal tightening.
(d) The global trade
slowdown due to trade wars, geopolitical tensions and uncertainty over Brexit
etc.
(e) The cyclical global
economic slowdown due to fatigue after long expansion period since GFC.
This exercise may help finding the right solutions and
alleviating the atmosphere of despair and pessimism.
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