India: Favourable current account cues
India’s external trade is buffeted by a narrower trade bill and pick up in services’ earnings.
Group Research - Econs, Radhika Rao20 Feb 2024
  • FY24 nominal goods export is expected to be strong.
  • Electronics is amongst the fast-growing export segments, besides pharma and engineering goods.
  • A concurrent strong run-up in the service exports is a key counterweight to the goods deficit.
  • We track the current account deficit to be less than 1.0% of GDP in FY24.
  • Fallout of the Red Sea disruption and slower global growth are key risks.
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02:42:45This is a summary of the report. Please download the PDF for the full note.

Goods export retains momentum

India’s annual merchandise export is on track to stay above $420bn for a third consecutive year in FY24 (Apr23-Mar24), down a moderate 5% yoy. This marks a climb from an average of $300bn during FY16 to FY20. Data from the first ten months of FY24 (10MFY24) saw three off the six key export segments - electronic goods, pharma, and engineering goods, post growth from the year before, while petroleum, gems & jewellery and chemicals slipped.

Lower commodity prices keep a lid on imports

India’s goods imports are expected to contract by ~7% yoy in FY24 (Apr23-Mar24), after a 17% increase in FY23. Last year, total imports had touched a record high of $716bn, after oil purchases rose by a third. This year, the price of the Indian crude basket is down 12% yoy YTD. While volumes held up, the negative price-effects coupled with diversification in sourcing countries, including the rising share of purchases from Russia (ural still trades below Brent, even if the discount has narrowed in the past year) have led to a lower crude bill. The share of Russia in India’s supplier mix has risen sharply from FY22 to this year – see related charts below

... netting off the two, goods trade deficit stands to narrow.

The goods trade deficit stands to narrow by ~10% to $235bn this year, down from a record high of $264bn in FY23. When classified by oil and non-oil balances, bulk of the deterioration in last year’s balance was on account of commodities, part of which is expected to reverse out this year on price-effects (see chart).

Overall trade gets a services boost

Continuing with key points raised in our earlier note India’s service trade is on a strong wicket, service exports are on course to notch a record high in FY24 at nearly $348bn, up 7% the previous all-time high in FY23. This has resulted in a sharp improvement in the nominal services to goods export ratio in the past two years. With imports on course to slip, the trade surplus is expected to jump to a record high of $171bn in this fiscal year (see charts below).

Risks on the horizon

The trade sector faces a few headwinds in the year ahead. Firstly, two disruptions are troubling the global supply chains this year – Red Sea developments and attacks against commercial vehicles since late last year. Next, the prolonged dry spell at the Panama Canal, likely due to El Niño, which has severely affected operations. The global container freight index has ticked up as evident in the chart, even if the rise is not as stark as experienced during the pandemic (see charts).

To read the full report, click here to Download the PDF.  

Radhika Rao

Senior Economist – Eurozone, India, Indonesia
[email protected]

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