By Nimesh Vora
MUMBAI, Feb 16 (Reuters) - India's narrowing merchandise
trade deficit and widening service trade surplus have prompted
some economists to lower their estimates for the country's
current account gap for the current and next fiscal years.
India's merchandise trade deficit dropped to a 12-month low
of $17.7 billion in January, while the services trade surplus
rose to an all-time high of $16.5 billion last month, government
data released on Wednesday showed.
The sizeable decline in the trade deficit was fuelled by a
15.8% month-on-month slump in imports, mainly of oil, while
overall exports dropped 13.4% on-month, continued to be weighed
down by tepid global demand.
On the other hand, it was robust exports that helped the
service surplus scale a new high.
The combination of falling goods deficit and the rising
services surplus bodes well for current account dynamics, Rahul
Bajoria, Barclays chief India economist, said in a note.
Barclays lowered its current account deficit (CAD) forecast
to $95 billion, or 2.8% of GDP, for the current fiscal year that
ends in March, from $105 billion, or 3.1% of GDP, earlier.
Its CAD estimate for the next fiscal year is now pegged at
$85 billion, or 2.3% of GDP, compared with $95 billion, or 2.6%
of GDP, previously.
Madhavi Arora, lead economist at Emkay Global Financial
Services, pointed out that the trade deficit in January was also
much lower than the average of $25.5 billion for the second half
of 2022.
So, "CAD should ease from hereon, led by incrementally
improving trade deficit," Arora said.
Emkay now expects CAD of 2.6% of GDP for the current fiscal
year, versus a prior estimate of 3.1%, and of about 2.2% of GDP
next fiscal, versus 2.6% earlier, Arora said.
IDFC Bank would also have to revise its forecasts, said
economist Gaura Sen Gupta, after the January trade deficit came
in well below the bank's estimate of $22 billion.
"Now with the January deficit much lower and assuming
February and March will average around $19 billion, there is a
clear downside to our projections."
"Our previous estimate was 3% for the current fiscal year,
and now it is likely to be nearer to 2.4% or 2.5%," Sen Gupta
said.
However, she reckons that the revised CAD forecast was
unlikely to change the narrative for the rupee's depreciation
against the U.S. dollar.
The recent string of robust U.S. data has bolstered bets
that the Federal Reserve will hike interest rates at least two
more times and will keep rates higher for longer, she said.
"This would mean that capital flows will continue to remain
weak."
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India's merchandise trade deficit narrowed and services surplus
rose in January ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Nimesh Vora; Editing by Savio D'Souza)
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