India’s trade Surplus – Oscillating Prospects

India's trade Surplus

Image source: FACTLY

India’s first trade surplus in 18 years was chronicled at $0.8 billion in June which is a panic button for India’s trade Surplus instead of an indicator of joviality.

Balance of Trade and Payment – Achieving Tandem

  • India’s trade surplus during June for the very first time made a memoir over years, as exports plummeted quicker than imports from pandemic setbacks.
  • The comparable progress in exports is motivating for India’s growth likelihood, but the constant flaws in imports are an expression of particular sector lockdowns, cheap commodity prices, and feeble basic demand, told Rahul Bajoria, the chief India economist at Barclays.
  • In the FY20 January-March quarter, the current account balance logged a marginal surplus of $0.6 billion, or nearly 0.1% of its gross domestic product (GDP). This can be seen as the first quarterly surplus in 13 years and correlates with a deficit of $4.6 billion a year back. For 2019-20, the current balance deficit constricted to 0.9% of the GDP versus 2.1% in the financial year 2018-19.
  • Kotak Institutional Equities (KIE) economists announced in a statement dated 15 July, while the oil prices remained constant in the present span (average crude oil price of $40/barrel), we anticipate FY2021 current account to report a surplus of 0.6% of GDP.
  • However, the capital account balance may get steady in FY2021 owing to the unstable FPI flows. The basis on this, we foresee the FY2021E balance of payments (BOP) to remain exuberantly in surplus at $59.4 billion. For the balance period component of FY21, KIE expects the Indian rupee to trade in between the range of 74-77.5 $/INR.

RBI – the sanguine skipper

  • Although a tremendous surplus is tiding, we expect the RBI to interfere aggressively to restrain a sharp INR preference. The INR viewpoint will also be molded to the extent of global liquidity, US-China trade conflicts, India’s border matters, and the COVID spread,” the report underscored.
  • Aditi Nayar, the principal economist at the rating agency explained, the Indian-rupee is presently trading at 75.12/$. Coming back to trade data, during June, commodity exports contracted 12.4%, while imports dropped 47.6%. Given the slowed-down recovery in imports, ICRA predicts the merchandise trade deficit to shrink to around $10-12 billion in Q1 FY21 on a BOP basis. However, the continuous economic uncertainty would harshly impact inward remittances.
  • Balancing these varying trends, a current account surplus of Indias Trade Surplus is anticipated of around $14-16 billion in real terms, $8.6 billion of import difference — just over 40% of the total fall of $20 billion between June 2020 and June 2019 — came from crude and petroleum stocks and gold and silver. While these commodities are “raw materials”, their lesser imports here aren’t necessarily a negative reflection on the economic situation.

Conclusion

While the trade surplus indicates the culture to maintain Panglossian countenance, the gleam is only momentary. The collaborative efforts of the RBI, Government, and entrepreneurship coupled with thrust on both demand and supply can only act as key to maintaining the current account balance of the nation.

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