Based on preliminary trends for July to August 2023, the rise in crude oil prices, the merchandise trade deficit is projected to widen on a QoQ basis to USD 69 to 71 billion in the ongoing quarter, from USD 56.6 billion in Q1 FY2024, said the rating agency Icra in a report.
Nevertheless, it is likely to trail the levels seen in Q2 FY2023 (USD 78.3 billion).
On a YoY basis, the merchandise trade deficit narrowed to USD 42.6 billion in July to August FY2024 from USD 50.3 billion in the year-ago period, with a slightly sharper moderation in import growth vis-à-vis that in exports.
“This was predominantly led by oil items, even as the deficit on non-oil products was largely steady,” according to the rating agency.
However, in sequential terms, the monthly average deficit of USD 21.3 billion in July to August FY2024 trended higher than the average of USD 18.8 billion seen in Q1 FY2024, entirely driven by non-oil items (such as gold, iron and steel, etc.), outweighing the narrowing of the deficit on oil items.
Notably, the year-on-year (YoY) growth in services exports rose to 8.1 per cent in July 2023 (+25.3% in July 2022) from 6.1 per cent in Q1 FY2024 (+35.4 per cent in Q1 FY2023).
“Nevertheless, it continued to print in single digits for the fourth consecutive month, partly on account of some slowdown in demand from advanced economies, as well as an unfavourable base effect,” Icra report mentioned.
On the other hand, services imports contracted by 2.2 per cent YoY in July 2023, sharper than the 1.5 per cent decline seen in Q1 FY2024. Benefitting from this, India’s services trade surplus expanded by 22.3 per cent YoY in July 2023, compared to the 17.1 per cent growth seen in Q1 FY2024.
With the average merchandise trade deficit trending higher in Jul-Aug 2023 relative to Q1 FY2024 levels and the recent increase in crude oil prices, Icra estimates the CAD to widen sequentially to $19-21 billion (-2.3 per cent of GDP) in Q2 FY2024 from USD 9.2 billion (-1.1 per cent of GDP) in Q1 FY2024.
