Looking at 2% growth in exports for full year: StanChart

In an interview to CNBC-TV18, Rahul Bajoria, regional economist, Barclays Capital said the export data has been somewhat sluggish in June at USD 23.79 billion but a part of it is because of pricing issues and a weak currency. Exports, in local currency terms, have seen fairly decent growth, he says.

He says the import numbers on the other hand have been better-than-expected at USD 36 billion. It was expected to be USD 13-14 billion in terms of trade deficit, but instead it is at USD 12.2 billion. However, he cautions against rejoicing and says the source of this weakness needs to be examined. "If it is only coming from gold then that is very good news," he added. It would mean that some of the current account funding worries are likely to dissipate at the margin, but if it is coming from non-oil, non-gold side then it’s a point of concern. Also Read: Nifty reclaims 6000 on trade deficit fall; Infosys up 11%
Meanwhile, Anubhuti Sahay, associate economist (global research) at Standard Chartered Bank is a lot more positive than Bajoria. She feels the headline number is definitely a positive. She said the narrowing trade deficit is most probably on the back of lower gold imports, which shows that the government policy has had a positive impact. "Going forward it is likely that we will see some relief on the import bill and thus on the trade deficit front in the rest of FY14," Sahay said.
She, however, is cautions on weak exports numbers saying: "While we didn't expect it to be very strong, but we were still expecting it in the positive terrain." she said. Though she expects exports to grow by 2 percent for full year.
Looking ahead, Bajoria said, the key thing to watch out for would be what is happening on the oil ex-gold trade balance and where oil prices are heading towards. If the oil price increase persists, then that can add to trade deficit. Below is the verbatim transcript of Rahul Bajoria and Anubhuti Sahay's interview on CNBC-TV18 Q: The export data has come in at USD 23.79 billion. On a month on month basis what would it look like in terms of how we have done for the exports this time around? Has the sluggishness continued into June? Bajoria: There is some sluggishness there in the month of June but part of it was also probably due to pricing issues given that we saw significant weakness in rupee and the value of dollar generally went up.
So, if we look at the exports on a local currency term basis, we are still seeing fairly decent growth on the local currency side. The critical figure is really the import numbers. Q: The import numbers have also come out – USD 36 billion. So, that is about USD 12.2 billion in terms of the trade deficit for the month of June. That is the number that has come out – USD 12.2 billion. What would your thoughts be at this USD 12.2 billion data that we have got? Bajoria: It is a little bit better than what we were internally factoring in. We were looking for somewhere between USD 13-14 billion. The split between gold, oil and non-gold, non-oil imports needs to be seen because even if we have a smaller trade deficit at the end of the day we really have to see what's the source of the weakness. If it is only coming from gold then that is very good news.
It would mean that some of the current account funding worries are likely to dissipate at the margin but if it is coming largely from non-oil, non-gold side then it’s a point of concern because it sort of underscores the weakness in growth that is evident on the manufacturing and on the industrial side and it would start percolating down your imports as well. I don’t know whether we can really interpret that as a positive. It will probably show other weaknesses that the Indian economy is facing at this point.
_PAGEBREAK_ Q: What is your take on the trade deficit data for the month of June which has come in at USD 12.24 billion as well as the exports which are down 4.6 percent for the month of June itself? Sahay: The headline number is definitely a big positive. All the way from USD 20 billion we are USD 12.2 billion then it gives us a lot of relief on the current account deficit front.
I sense that most probably it has come on the back of lower gold imports, which shows that the governments policy has had a positive impact.
Going forward it is likely that we will see some relief on the import bill and thus on the trade deficit front in the rest of FY14.
On exports, it is definitely more concerning - while we didn’t expect it to be very strong, but we were still expecting it in the positive terrain. At 4.6 percent it clearly shows that global demand is a very important factor for the overall export performance and just rupee weakness will not help exports.
For the year as a whole we do expect exports to look better. We are looking at positive growth of 2 percent but his number has raised some worries. So, we will need to watch out the export performance very closely while the news on import looks more promising. Q: Going ahead what is your expectation? On this base of about USD 12.2 billion that we have gotten what do you think July could look like? Gold imports have fallen in the month of June quite a bit but that could be because of seasonal factors, the wedding season being behind us etc. What would the trajectory be going ahead? Bajoria: Looking ahead the key thing to watch really would be what is happening on the oil ex-gold trade balance and that has improved at the margin in the month of June. We think that we could see numbers somewhere between USD 12-15 billion in the next three months if we do not see a sharp increase in gold imports.
Another thing to watch out for would really be where oil prices are heading towards. We have seen about 7 percent increase in the last couple of weeks. If this oil price increase persists, that can add to the trade deficit in India and that is something that we are looking out for in the next one month. Q: How worried would you be in terms of the trajectory going forward that if in case gold does sustain at these current levels do you think that the depreciating rupee and maybe even crude prices now spiking back up to that USD 107/barrel mark might actually negate what we earn from the clamp down on gold any which way? Bajoria: No, I do not think it will have a significant impact in the sense that oil prices have only moved up by 7 percent and one of the major exportable items for India is petrochemicals. I think it will probably have a much bigger impact around fiscal balances because subsidy rationalisation that has been happening in the last six months. Some of the good work would be undone. So we will see the pressure points emerging on probably some of the other macro variables rather than on trade deficit itself. Q: What is your view on how all this will impact the Current Account Deficit (CAD)? Now that the trade deficit has narrowed quite a bit, gold imports have gone down, how much would it alleviate the stress on CAD and what would your estimate be for FY14? Sahay: For FY14, we are looking at a sharp correction in CAD. Right now, we are looking at around USD 75 billion of CAD in FY14 versus USD 88 billion. We need to understand that even if we are expecting slower gold import bill our estimate is that probably we will be in the range of USD 2-3 billion of gold bill per month in the rest of FY14. We have imported almost close to 4-5 months of gold imports in just April and May. So the yearly number might not look significantly low, but going forward we should see a correction in trade deficit on a monthly basis. For the year as a whole we are looking at around USD 14-15 billion kind of correction. Q: For Q1 FY14 the trade deficit stands at USD 50.2 billion. This compares to around USD 45.6 billion in Q4 FY13. What then would be your CAD figure for this quarter in specific? Sahay: I do not have a point estimate to share with you at this particular moment, but if I just compare it to the trade deficit number which we had for the December ending quarter that was at around USD 56 billion and now if the June ending quarter is at USD 50 billion and also in the June ending quarter we will not have the positive seasonal impact of higher remittances and other software exports. So if I put these two things together it might not be as worse as December, it is unlikely to be as good as March. It has to be in higher 20s, so probably USD 25 billion plus kind of CAD in the June ending quarter.