Nov 15, 2023

ECOLOGUE

Trade Deficit: Widens on higher imports

India’s Trade Deficit widened to USD 31.5 bn in October (USD 19.4 bn in September)
mainly on account of higher imports, indicative of resiliency of the Indian economy
alongside festive season demand upswing. Higher commodity prices in the month were
also possibly responsible. Gold imports were at USD 7.2 bn, the highest since March
2021. NONG imports grew by 12.3% MoM whereas non-oil exports registered a
sequential decline of 1.3% in October. India’s services surplus improved to USD 14.4 bn
in October. Assuming India crude basket to average at USD 85 pb, we revise upwards
our CAD/GDP to 1.7% (earlier 1.3%).
Highlights
Exports decline sequentially: Headline exports at USD 33.6 bn, registered a de-growth
of 2.5% MoM (6.2% YoY). Oil exports declined by 7.6% to USD 6.0 bn. The decline in oil
• Oct-23 trade deficit came
exports could be attributed to the maintenance-related dip in production in some of the
at an all-time high of USD
major refinery units. Non-oil exports declined by 1.3 % MoM to USD 27.6 bn. 12 out of
31.5 bn driven by higher
major 31 items registered a MoM decline. Within agriculture exports, tea, coffee, rice, and
imports, imports
other cereals registered sequential drops whereas spices, cashew, oil seeds, and fruits and
increased on a YoY and
vegetables registered sequential increases. Engineering goods accounted for the highest
MoM basis
share in the total exports, however, it registered a sequential decline of 9.2% in October.
• Festive demand and
Imports at a record high: At USD 65.0 bn, imports rose by 12.3% YoY (or 20.8% MoM).
surge in commodity
Oil imports came to USD 17.7 bn (26.3% MoM), reflective of the higher crude oil prices. In
prices are reflected in the
October 2023, India crude basket averaged at ~USD 89 pb. Gold imports came to USD 7.2
higher import bill
bn in October 2023 (USD 4.1 bn September). Restocking on account of festive and upcoming
wedding season in anticipation of higher gold prices due to geopolitical worries may have
• We revise upwards our
led to the sharp rise. Non-oil-non-gold (NONG) imports increased by 12.3% MoM to USD
CAD/GDP estimate 1.7%
40.1 bn. 22 out of 31 major import items registered sequential increases. Importantly, iron
(earlier 1.1%)
& steel (18% MoM), non-ferrous metals (5.8% MoM), machine tools (-25% MoM),
machinery, electrical & non-electrical (10.6% MoM), transport equipment (28.9% MoM)
registered sequential rise. On the other hand, electronic goods and project goods registered
sequential declines. Pulses imports continue to increase registering a MoM growth of 38%
in October. The higher imports are reflective of government stocking up pulses considering
the increased risks to rabi production on account of El Nino and lower reservoir levels.

Net services export improves: Services exports grew by 1.0% MoM (13.4% YoY) to USD
28.7 bn. Last month’s services export number was revised down to USD 28.7 bn from USD
29.4 bn. Though services exports have remained steady to date, there is a growing concern
among the major IT companies about the slowing demand for technology services in the
global market. Services imports were at USD 14.3 bn (-1.8% MoM, +6.0% YoY). On a net
basis, the services surplus came to USD 14.4 bn vs 13.8 bn in September.

CAD/GDP estimated at 1.7%: October’s trade deficit came to an all-time high of USD 31.5
bn on account of higher imports, a resultant of both higher volumes and prices. Commodity
prices got a boost in October on account of (i) geo-political tensions in the Middle East, and
(ii) on optimism that the Fed is done with rate hikes. For instance, gold prices touched a
peak of USD 2006 per oz on 27th October 2023, reflecting the safe haven demand and
correction in UST yields. This is also coincided with the festive period in India when there
is increased demand for gold and other commodities. We expect gold prices to average at
~ USD 1970 per oz for the rest of FY24, bringing some pressure to the imports side.
Indranil Pan Similarly, the risk from higher oil import bills continues to exist. Though crude oil prices
Indranil.pan@yesbank.in have corrected from a peak of USD 96.9 pb (touched on 27th September 2023), the supply-
+91-22-68528412 demand mismatch continues to be the major factor driving the prices. Resilience of
domestic growth will also mean a resilience to non-oil imports.
Deepthi Mathew
Deepthi.mathew@yesbank.in Based on the above, we revise higher our CAD/GDP estimate for FY24. Assuming crude
+91-22-50920688 oil prices to average at USD 85 pb, imports are expected at USD 698 bn and exports at USD
428 bn, bringing the trade balance to USD (-) 270 bn (or -7.6% of GDP). Meanwhile, net
services sector flows are expected to remain stable, though risk exists on account of the
slowing demand in the major export destinations such as the USA, UK, and EU.
Consequently, CAD is expected at USD 59 bn, with the CAD/GDP at 1.7% (earlier 1.3%).

YES ECOLOGUE 1
Nov 15, 2023

ECOLOGUE
Exhibit 1: Trend in India’s trade deficit Exhibit 2: Trend in Non-oil exports and NONG imports

India's merchandise trade deficit (USD bn, 12m trailing) Exports excl oil (USD bn) Non Oil Non Gold (USD bn)

45

-80
40
-130

35
-180

-230 30

-280 25
Oct-15
Oct-16
Oct-07
Oct-08
Oct-09
Oct-10
Oct-11
Oct-12
Oct-13
Oct-14

Oct-17
Oct-18
Oct-19
Oct-20
Oct-21
Oct-22
Oct-23

Feb-22

Feb-23

Sep-23
Dec-21

May-22

Sep-22

Dec-22

May-23
Apr-22

Apr-23
Oct-21

Jan-22

Mar-22

Jun-22

Oct-22

Jan-23

Mar-23

Jun-23

Oct-23
Nov-21

Jul-22
Aug-22

Nov-22

Jul-23
Aug-23
Source: CEIC, Yes Bank Economics Research Source: CEIC, Yes Bank Economics Research

Exhibit 3: Annual YBL FY24 Current Acccount Deficit (CAD) estimates

USD bn FY24E Oil

FY20 FY21 FY22 FY23 @85
Trade Balance -158 -102 -189 -265 -270
(as % of GDP) -4 -6 -8
Merchandise Exports 320 296 429 456 428
Oil Exports 42 26 61 75 71
Non-oil Exports 271 265 357 374 353
Merchandise Imports 478 398 619 721 698
Oil Imports 130 82 164 210 168
Gold Imports 28 35 46 35 51
Non-oil-non-gold imports 317 274 400 478 473
Invisibles 133 126 151 198 211
Services 85 89 108 143 155
Transfers 75 73 80 101 94
Income -27 -36 -37 -46 -38
Current Account -25 24 -39 -67 -59
(as % of GDP) -0.9 0.9 -1.2 -2.0 -1.7
Source: CEIC, Yes Bank Economics Research

YES ECOLOGUE 2
Nov 15, 2023

ECOLOGUE
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YES ECOLOGUE 3