India’s biggest trade deficit in 5 years adds to rupee’s woes

By BLOOMBERG

NEW DELHI • India’s trade deficit in July widened to the most in more than five years, worsening the outlook for the rupee that hit a record low on Tuesday.

The gap between exports and imports reached US$18 billion (RM73.8 billion) in July, fanned by a higher oil import bill, according to data released by India’s Commerce Ministry on Tuesday. That compared to the US$15.7 billion median estimate in a Bloomberg survey of 24 economists and US$16.6 billion in June.

The trade shortfall puts pressure on the current-account deficit, a key vulnerability for the economy and one of the reasons why the rupee has been among the worst-hit in Asia amid an emerging-market rout this year.

The rupee dropped to as low as 70.08 per dollar on Tuesday as a collapse in Turkey’s lira hit investor sentiment, taking the slump in India’s currency down to 8.6% this year.

While a weaker rupee is positive for exports, it poses an inflation risk for a nation that 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 108.8 billion rupees (RM6.48 billion), according to the Oil Ministry.

Inbound shipments of oil in July were at US$12.4 billion, up 57.4% from a year ago, while gold imports surged 41% to US$2.96 billion and electronics goods by 26% to US$5.12 billion. Overall imports rose 29% to US$43.8 billion, while exports grew at 14% to US$25.8 billion.

The last time the trade deficit was wider was in May 2013 at US$19.1 billion, according to data compiled by Bloomberg.

The wider trade gap comes at a time when inflation is easing, complicating the central bank’s policy outlook.

Wholesale price inflation eased for the first time in five months, while consumer-price growth moderated to 4.17% in July.

The current level of reserves at about US$402 billion will provide import cover of less than a year. The current-account gap is set to widen to 2.4% of gross domestic product in the financial year to March 2019, from 1.9% in the October-December period.