• HDFC
• 24 Aug 2018
• Knowledge Centre

HDFC, Tester

The figure for India’s trade deficit in July 2018 has reflected the trend of the country’s weakening macroeconomic indicators. At US$18 bn, the trade deficit widened to the largest figure in more than five years, when it was US$19.37 bn in May 2013. This worsened the outlook for the Indian Rupee, the domestic currency that was already depreciating to never-seen-before levels.

 

According to a financial daily, the trade shortfall pressurized the country’s current account deficit, an important statistic for the economy.

 

Data released by the country’s commerce ministry shows that the main reason for the widening of the gap between exports and imports was a high oil import bill. The Rupee dropped to a low of 70.08 per US Dollar on 14th August 2018, triggered by this data and also by a plunge in Turkey’s domestic currency – the Lira. This marked a slump of 8.6% in the value of the domestic currency during the year.

 

The country’s exports of goods in July 2018 continued on the growth track, increasing 14.32% (year-on-year) to US$25.77 bn. It was propped up by sectors like electronics, engineering goods, gems & jewelry, and chemicals, according to data from the commerce ministry.

 

However, the growth in imports was more than double that of exports at 28.81% to US$43.79 bn. This resulted in a sharp increase in the trade deficit, which stood at US$16.6 bn in the previous month.

 

The daily CITES data from the oil ministry stating that while a weaker rupee is advantageous for exporters, it brings with it the risk of inflation, as India imports more than 80% of its crude oil needs. Every Rupee change in the exchange rate against the US Dollar impacts India’s crude oil import bill by Rs 10,880 crore.