India’s December 2013 trade deficit stood at USD 10.14 billion versus USD 17.19 billion in the same month last year. Exports growth remained slow, but imports, especially of gold, continued to fall.
Merchandise exports rose 3.49 percent year-on-year to USD 26.35 billion, slowing down from a 5.86 percent pace in November. Imports fell 15.25 percent year-on-year to USD 36.49 billion led by a 68.83 percent year on year drop in gold and silver imports.
Relax! No need to worry about CAD now
Samiran Chakraborty, Regional Head of Research, India, Standard Chartered Bank feels that the current account deficit (CAD) for the full year may now fall below his estimate of about USD 45 billion. For the December quarter, he sees it lower than USD 5 billion. "The risk of current account deficit is much lower. However, the market is still worried about fiscal deficit," he said.
Agreeing with Chakraborty, A Prasanna, Chief Economist, ICICI Sec adds that fears related to CAD are now behind us.
Analysing export-import trends
Both the experts lay emphasis on break-up of exports data. In November, exports in some categories decelerated. Prasanna is hopeful that it may have been just a one off, but adds that prima facie it doesn’t look like that export pickup has happened as yet.
Explaining the trend, Chakraborty said, last month export of precious stones and auto declined. The decline was due non-tariff barriers being imposed in some African and Latin countries. To find out if this trend has continued in December, break-up of exports data is important, he said. However, if that is not the case then, export growth for the full year can be better given that this year global growth is expected to pick up particularly in destinations where India exports more, he added.
According to government, December exports were modest were due to lower petroleum products shipments, but it is now coming onstream. Adding to this Prasanna said, petroleum exports is clearly a one off and is just extended for two months.
As far as gold import data is concerned, there isn’t too much difference from the last couple of months. Ever since import restrictions were put in place on the yellow metal, imports have been broadly on similar lines, Prasanna said.
Non-oil and non-gold imports have also slowed down and we are not seeing any signs of pickup, despite this no one predicting a very sharp recovery at this point of time, he added.
“The best way to look at it would be - growth might have bottomed out, but recovery is going to be very tepid. So, inline with that even your non-oil, non-gold import growth is also going to be quite modest,” he said.
Where is the rupee and bond yield headed?
Chakraborty does not see much upside for the Indian currency from the current levels. The market has digested that the CAD won’t be a risk for India anymore. Hence, the rupee has not depreciated much when compared to other emerging market currencies, he added. He expects the rupee be rangebound till general elections, scheduled in May.
Prasanna said 10 year bond yield is likely to hover around 8.75 percent until some certainty emerges on overnight rates. "I don't see too much of a case for holding positions in the bond market now," he added. The overnight rate is generally the rate that large banks use to borrow and lend from one another in the overnight market.
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