In an interview to CNBC-TV18, Samiran Chakrabarty, Head of Research, Standard Chartered Bank spoke about his reading of the August trade deficit data and the road ahead.
Below is an edited transcript of the interview on CNBC-TV18
Q: These are the prima facie numbers that we have, the trade deficit numbers are coming in at USD 10.9 billion, what would your initial take be on that?
A: It is marginally higher than what we were expecting. What is comforting in the data is the very high growth in exports at 13 percent year-over-year (Y-o-Y). What is discomforting is that if gold imports were so low as reported by media in the last few days, just about 2.5-5 tonne, vis-à-vis 36-40 tonne earlier so then we would have anticipated a farther reduction in imports on the back of that. So imports have not corrected as much as we had anticipated.
Q: What is your view on how the situation will pan out going ahead because for a systemic reduction in gold imports, we need to see a consumer price index (CPI) inflation coming down as well? On both these parameters, how much do you think CPI inflation could moderate? How much do you think gold imports could recede going ahead?
A: Let us accept that the reason behind the decline in gold imports in August seems to be purely technical, where importers stopped importing because there as no clarification on the measures announced in July.
So there is a possibility that there could be bunched up gold imports in September and October once clarity emerges on this issue. Having said that, we still think that trade deficit will not be such a big concern as we move forward.
Our own expectation is that the CAD numbers would improve substantially to a quarterly average of about USD 15 billion in the quarters ahead compared to about USD 25-30 billion, which was probably in Q1 of fiscal year 2014. So trade deficit is not going to be that much of a problem, if at all, it could be a silver lining in the whole macro story.
Q: Do you think the improvement that we have seen in exports for two months is sustainable? This in the month of August has gone up by 13 percent on year-on-year basis and even in July it was up close to about 11-12 percent?
A: There are two things. One is that both these months had significant base effects of minus 12 percent growth and minus 6.6 percent growth of last year. So part of this huge improvement in the export growth number is purely on base effect. But having said that, the second reason is also equally important where our analysts believe that there is a significant economic recovery happening in US, Europe is coming out of recession, Japan's GDP has been revised upwards.