December 11, 2013 / 18:46 IST
From a balance of payments (BoP), current account deficit (CAD) and rupee perspective, the November trade data is a reason to cheer, but Sajjid Chinoy, Chief India Economist, JPMorgan highlights that the fall seen in exports on a monthly basis cannot be ignored. Also, the fact that gold import, which has been one of the largest contributors to India's trade bill, doesn't have the potential to fall further from the current level.
On an annual basis, exports in November rose 5.8 percent at USD 24.61 billion. However, it stood at USD 24.61 billion against USD 27.27 billion in October.For the last three-four months, the leading indicators in the purchasing manager’s index (PMI) have been indicating that the export momentum seen over the last three-four months, was not going to sustain and unfortunately some of that has played out in November, he told CNBC-TV18 in an interview.Seasonally adjusted month-on-month (M-o-M) momentum of exports has slipped 8 percent and if this trend continues, it may not upset the apple-cart in terms of CAD, but it will hamper growth, he cautioned.Meanwhile, imports in November hit lowest level in four years after gold shipments from overseas fell sharply. Imports fell by 16.37 percent year-on-year to USD 33.83 billion. Gold and silver imports slumped 80.49 percent to USD 1.05 billion in November compared to a year earlier. Oil imports stood at USD 12.9 billion against USD 15 billion seen in October. Non-oil imports declined to USD 20.87 billion versus USD 22.61 billion (M-o-M). (Read More)Non-oil and non gold imports have been quite weak for the last three-four months and the part of the reason is why CAD has narrowed so much this year. “The fact that non-oil, non-gold of a relatively low base in the last few months has fallen off again by USD 2 billion does it not give me much confidence that we are on the cusp of a big pick up in growth since it is at least showing up in the import numbers,” he said. Meanwhile, though gold imports have seen a drastic decline on a year-on-year basis, Chinoy feels that it is too soon to expect the goverment to relax restrictions on gold imports. In a bid to protect the Indian currency and curb the trade deficit, the government has imposed an import duty of 10 percent on gold and tied imports for domestic consumption with exports.Below is the edited transcript of Sajjid Chinoy's interview with CNBC-TV18Q: What is your view on the entire trade deficit data that has come out for the month of November?A: I have two perspectives in this. If one looks at this number from a balance of payments (BoP) and current account deficit (CAD) perspective for this quarter in this year then it is a positive number. If you are running trade deficit in the USD 9-10 billion range then you are looking at current account run rate between USD 40 billion and USD 50 billion, so it is very positive.However, I just want to add two notes of caution here. The seasonally adjusted month-on-month (M-o-M) momentum of exports has seen a very big drop-off; it is 8 percent fall on M-o-M seasonally adjusted basis. The reason I worry a little bit about this is, for three-four months, the leading indicators in the purchasing manager’s index (PMI) tell that export momentum we have seen over the last three-four months, was not going to sustain and unfortunately some of that has played out in November. My worry is, if in fact this trend continues for a while, it may not disturb the apple cart in terms of where the current account is, but it will not be very good for growth.Another worry is the import growth has come down very sharply. I don’t know what the break-up is, but my suspicion here is non-oil, non-gold imports are quite weak because the room for gold to fall is little. Gold imports were barely above a billion dollar last month. Either it is oil or it is non-oil or non-gold. If it is non-oil, non-gold that it means that growth impulses in November were quite weak. So, we will celebrate the trade deficit number for November, but the underlying quality of that narrowing worries me because it is on the back of lower exports and much lower imports. I would worry about growth prospects if I look at this number. From the rupee’s perspective, it is positive._PAGEBREAK_Q: We did have very strong export numbers for the last four months. From July we have been having between USD 26-27 billion. This month it is at USD 24 billion, so it could just be perhaps lumpy orders would you think or would you start worrying right away about the export and import numbers?A: No, I do want to be alarmist on the export front. I am just saying it is consistent with what you are getting in other leading indicators, which is the momentum, the scorching pace of exports in July-August-September-October will not sustain. Let us see if it goes down to these levels or picks again.But something we need to watch about and should not take the export pick up for granted. The other reason I worry is it is just non-oil, non gold. That has been quite weak for the last three-four months and the point I keep making is, part of the reason that CAD has narrowed so much this year, some of it of course is gold, but part of it is because growth in India is so weak compared to our trading partners.Q: Oil imports are down 1.1 percent year-on-year to USD 12.9 billion. Oil imports last months were at USD 15.2 billion, now down to USD 12.2 billion. It is really not non-oil, non-gold, but oil which has fallen by about USD 2 billion, from USD 15.2 billion to USD 12.9 billion. What are your comments?A: That is good news, because the overall drop in imports is about USD 4 billion. If 2 billion of that is accounted for oil given that is really very little scope for gold to go down further, it tells me that non-oil, non-gold has fallen by about USD 2 billion which is not small, but at least it is not the bulk of the import compression. The fact that non-oil, non-gold of a relatively low base in the last few months has fallen of again by USD 2 billion does not give me much confidence that all these assumptions that we are on the cusp of a big pick up in growth is at least showing up in the import numbers.Q: Considering that we are heading towards a CAD of USD 40 billion compared to USD 88 billion last year, the enemy has been conquered largely; do you think now there is elbowroom to relax on gold imports?A: I do not think so. It is one thing to have a CAD of 2 or 2.5 percent when your growth is at 4.5 or 5 percent - what we should endeavour to have is a CAD of 2.5 percent when the growth is at 7 percent. I do not think policymakers are in any mood to let up on gold imports. They see that as a source of unproductive savings. I do not expect that to happen. This is clearly an important adjustment and maybe some of the non-oil, non-gold moderation is happening not just because of growth prospects not being strong, but because of the 12 percent real depreciation of the rupee. You would expect some expenditure switching to happen on that account and that tells you that what has happened to the rupee is creating the necessary adjustment forces on the Balance of Payments (BoP). We should be thankful that when the taper does start, from an external perspective at least India is far more ready and far better positioned to handle a taper now than we were back in May. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
