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Sustaining export growth in weak global economy tough: RBS

Mar 11 2013, 22:21   |   By CNBC-TV18

India's exports are likely to improve going forward, but may not see a sharp rebound unless the global economy recovers. This is what Gaurav Kapoor of Royal Bank of Scotland, feels after looking at the trade data for February. Exports grew for the second successive month, while the growth in imports moderated most likely due to slackening in demand for gold and oil.

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"The global economic environment has stabilized over the last couple of months, you have seen growth improvement in the US which is one of our key trading partners," Kapoor said in an interview to CNBC-TV18.

"So we would see some improvement in exports but the point is that exports are unlikely to see a sharp rebound. Sustaining a consistent increase in exports when the environment, while improving remains weak, will be a challenge," he said.

Kapoor expects the current account deficit to moderate somewhat in the current quarter, after an uptick in the previous quarter. But the improvement could have to do partly with seasonal factors

"Q4 CAD is likely to be better than what you have seen in Q3. Q3 will perhaps be closer to about 6 percent because trade deficit in Q3 was USD 57 billion almost USD 10 billion more than Q2," said Kapoor.

"However Q4 also is also a good quarter in terms of remittances and Q4 CAD tends to be smallest in the whole financial year," he said.  

Below is an edited transcript of the discussion on CNBC-TV18.

Q: Will such a good trade data number last?

A: It all depends on whether we can maintain the exports momentum. More than only looking at import numbers which have been fairly high and there has been a significant jump since September because of pickup in imports, it is important to see whether the export growth momentum can sustain and I think we can see some improvement going forward.

Q: We have not got the details of why the imports have fallen but this could be that the impending rise in diesel cost for bulk buyers is beginning to tell perhaps in January we saw a lot of buying of gold in advance of the rise in the import duty. This is post import duty rise so would you guess that those would be the big things, gold and oil would have gone down?

 A: I would think so. Oil prices in February went up compared to January so I would not think that oil imports would have come down significantly. My estimate would be that gold imports would have come down because there has been a very sharp increase in gold imports in September. So there could have been some advance buying and I was expecting gold imports to start easing off as it has become fairly clear that the government now wants to tackle gold imports because oil imports are as necessary as gold. So gold is where the focus of the government is at this point of time. I would think that gold would have been one area where you would have seen sharp decline because from September onwards when trade deficit went up in the zone of USD 19-20 billion, we have seen a sharp pickup in gold imports. So I think imports have slowed down on account of slowdown in gold imports.

Q: What would this mean for the Q4 current account deficit (CAD) now?

A: Q4 CAD is likely to be better than what you have seen in Q3. Q3 will perhaps be closer to about 6 percent because trade deficit in Q3 was USD 57 billion almost USD 10 billion more than Q2. However Q4 also is also a good quarter in terms of remittances and Q4 CAD tends to be smallest in the whole financial year. So Q4 numbers will look better than what they have in the last couple of quarters so I think it would still be around about 5 percent. However certainly better than 6 percent mark which you could see in Q3.

Q: Would you say that the worst is over in trade deficit at all?

A: I am not skeptical about exports. The point I was trying to make was that we have seen two months of positive growth numbers but if you look at the headline numbers, the nominal numbers and the fact that the global economic environment has stabilized over the last couple of months, you have seen growth improvement in the US which is one of our key trading partners. So we would see some improvement in exports but the point is that exports are unlikely to see a sharp rebound. So sustaining a consistent increase in exports when the environment, while improving remains weak, will be a challenge.  

Q: Will this have an impact on the Reserve Bank of India (RBI) because this has been a continual worry for the RBI, fiscal deficit to some extent at least is in our hands, CAD will lag the fiscal deficit controls. Do you think they will be satisfied to move on March 19 believing that at least the trend of the CAD is improving?

A: I am not too sure of that. It still seem that March 19 numbers will depend more on wholesale price index (WPI) and more so on the consumer price index (CPI) numbers. In Q3 RBI itself pointed out that the CAD could still be fairly high. So while this number will definitely give them a sense of some degree of comfort, I don't think the overall problem of a fairly high CAD. Let us not forget a sustainable CAD in India is around 3-3.5 percent.

Q: Year on year oil and bullion imports are up 15 percent. Does that help?

A: I would also want to look at month on month numbers because year on year numbers there is at this point in time last year there was some slowdown in gold imports as well. So year on year is it difficult to really compare but I would still think we would have seen some month on month decline in gold numbers because that has been the defining point between the jump in trade deficit from an average of about 14-15 percent to an average of 19 to 20 percent.


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