Trade deficit narrowed: The trade deficit in December declined to a six-month low of $19.8 billion driven by exports, especially non-oil exports, rising more than imports on the back of better global demand, the report by Emkay Global Financial Services stated on Tuesday. This will lead to a moderation in the current account deficit as well. 

“Services surplus increased to a 12-month high, supporting the overall trade balance. We revise FY24 CAD/GDP to 1.2 per cent, implying CAD at $50bn and trade deficit/GDP at 6.9 per cent, due to resilient services and non-oil exports, along with lower expected commodity prices in Q4, while monitoring the possible impact of a prolonged Red Sea crisis.

According to the report, the goods trade deficit moderates further, with exports growing more than imports.  The merchandise trade deficit declined to a six-month low of $19.8bn in December, from $20.6 billion in November. 

The deficit reduction was led by a faster sequential rise in exports at $38.5 billion. The non-oil, non-gold (NONG) deficit also fell, while the oil deficit rose due to a decline in petroleum exports, with crude prices 7 per cent lower during the month, on average. On a YoY basis, exports were 1 per cent higher, while imports were 4.9 per cent lower, with core imports lower by 1 per cent. 

Non-oil exports showing encouraging signs

A sharp sequential improvement in exports for December is reflective of the higher external demand due to the festive season. This was also seen across Asia, where exports generally fared well in November and December.  The report mentioned that encouragingly, excluding oil, Indian exports have been at virtually the same level in the first nine months of FY24 as in the previous year, reflecting better global demand. 

“Higher exports in December have been led by engineering goods, gems & jewelry, electronic goods, and organic & inorganic chemicals, while shipments of petroleum products fell 8 per cent,” the report added. 

On the flip side, Gold imports fell further during the month despite higher prices, while petroleum imports were virtually unchanged. Other major import categories such as engineering goods, electrical & non-electrical machinery, and coal all rose sequentially in the first nine months of FY24.