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India’s Trade Deficit Unlikely To Widen Much Further: Capital Economics

Despite widening notably in January, India’s foreign trade deficit is unlikely to increase much further as exports should rebound following disruptions related to the Goods and Services Tax, Shilan Shah, an economist at Capital Economics, said.

The trade deficit rose to $16.3 billion in January, which was the largest since May 2013, from $14.9 billion in December, official data showed on February 15.

“But we don’t think this is reason to panic just yet,” the economist pointed out.

First, exports should pick up in coming months after being volatile in recent months, Shah noted. Delay in government payments of tax rebates following the implementation of GST has caused cash flow problems.

Encouragingly, the government is gradually resolving the issue, which should enable exporters to rebuild inventory and export more in the months ahead, the economist added.

Capital Economics observed another favorable factor for trade balance. Commodity imports are unlikely to rise much further as global oil prices have dropped 10 percent so far in February and higher import duties on gold should stifle demand a little more.

“We forecast the current account deficit to remain comfortable between 1.5 percent and 2.0 percent of GDP over the coming years,” the economist concluded.

Source: RTT News

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