While the October trade deficit number has come in higher than in the month of September, but it is not the right comparison, says Urijit Patel, Deputy Governor, RBI. Instead the important point is having a deficit that is 50 percent of what it was last year for the same month, which boards very well for the trade deficit and the current account deficit, he says.
Also Read: October trade deficit up to $10.5bn: Govt
"If you look at the April to October trade deficit, it is running at USD 12 billion lower than last year," he adds.
Below is the verbatim transcript of Urijit Patel's interview on CNBC-TV18
Q: The trade deficit numbers have come today at USD 10.5 billion. How do you see these numbers and what is the trend going forward? Do you see these getting worse?
A: I think the trade numbers today have been excellent. They are as good as they can over the last four months. We have had export growth that is in double digits. In October it was 13.5 percent. Imports are in negative territory.
The trade deficit for this October is half of what it was last October which is the comparison we need to make because there is seasonality involved.
So, while the deficit is higher than in September that is not the correct comparison. Having a deficit that is 50 percent of what it was last year for the same month boards very well for the trade deficit and the current account deficit, in fact is the most important fundamental factor that should impact the rupee.
If you recall just few months back this was described as a structural problem for the rupee and we can lay that to bed that part because of what we have done, in part because global trade has picked up or atleast global GDP has picked up, our exports are doing very well, imports have come under control and we are looking at a current account deficit in the range of USD 50-60 billion which compares with USD 88 billion last year.
If you look at the April to October trade deficit, it is running at USD 12 billion lower than last year.
So, this is very much in the realm of possibility that the current account deficit may come down to 3 percent of GDP and it is easily financeable.
Our external commercial borrowing (ECB) numbers are higher than last year. Our FCNR deposit numbers are higher than last year. FDI is about the same as last year. So, on the financing side it looks to be something that we can manage quite easily.
We have USD 281.2 billion in reserves which is a substantial firewall. We have now collected USD 17.5 billion through the two swap windows – the banking capital and the FCNR(B). Therefore, in terms of fundamentals that should determine the rupee. We are in extremely good territory at the moment and even over the last 10 weeks net foreign institutional investors (FII) investment is positive in 9 of those 10 weeks.
So, even there the story has changed. Therefore apart from 1 or 2 small numbers here and there almost every part of the balance of payments (BoP) is showing a substantial turnaround. Therefore today's trade numbers are just cherry on the cake, they are extremely good and I think it boards very well for the fundamental value of the rupee.
Q: Therefore do you see the need for shoring up more forex reserves going forward or do you think we are well prepared for tapering if it has to begin early?
A: We are extremely well prepared. We have USD 281.2 billion in reserves. We are well prepared for the taper.