Charts: Trade Deficit Expands To Widest Since November 2014 And This Is Good News

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India’s import deficit in April 2017 was a whopping 13 billion dollars. The most since November 2014. And that’s an awesome thing.

Exports and Imports

Why is this awesome?

Ok we exaggerate by using the word “awesome”. But bear with us. This is good news.

When we trade more, then we’re doing good things. We may be importing more, but that means our economy – which naturally imports more – is doing better. The key is this: we’re not importing more oil. In fact oil imports fell (due to prices dropping). It’s the non oil imports that have dropped.

And at $30 billion we’re nearly hitting those peaks we saw only in 2014 (and it’s peaked at these levels in three years before that)

Oil and non Oil Imports

Exports: Not Too Bad

Export growth (viewed on a per-day basis to remove monthly inconsistencies) is also doing well at 20% growth. Not too bad for a month that saw the USD fall below Rs. 64 per dollar.
Exports Per Day

The Counter: Services Sees a Pickup

Even service exports have not been hit, regardless of the rumours of IT companies dying every day. The service trade balance (this is where India has a surplus, not a deficit) is now at about $6 billion for the month of April, which isn’t bad at all.

Service Trade Balance

Our View: Signs of a trade recovery

Total trade has gone up to $62 billion. This is now on an uptrend.

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As trade recovers, economic growth should, too. However this increase in imports may be because of the drop in the USDINR, which makes things cheaper to import. The drop in the USD is largely due to increased foreign investment and the lack of RBI enthusiasm to buy.

Let’s see if this sustains. We think it’s a positive macro development and indicates some “green shoots” for the economy.

2 COMMENTS

  1. Hy Deepak,
    There is a common perception in the media and in the general public that trade deficits are bad news. The conventional wisdom is that these deficits are a drag on gross domestic product. Surely, it must bad for a country’s economy to import more than it exports, right?

    In reality, the trade deficit may be more pro-cyclical, moving in the same direction as local GDP. In this article, we will examine the correlation between trade deficits and GDP to show that sometimes it doesn’t pay to follow conventional wisdom.

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