The merchandise trade gap expanded to $40 billion in October, primarily due to delayed festive demand driving up gold imports. Offsetting this merchandise imbalance, a 12-month cumulative invisibles surplus of $332 billion is helping keep the current account deficit around 1% of GDP in FY27. Robust merchandise export growth, which surged 45% year-on-year in October, also points to durable underlying trade health. Consequently, foreign exchange vulnerabilities are expected to remain manageable throughout the fiscal year.
Key points
A projected current account deficit of 1% of GDP in FY27 indicates manageable external fi…: A projected current account deficit of 1% of GDP in FY27 indicates manageable external financing risks.
Robust services and invisibles receipts provide a critical buffer against periodic mercha…: Robust services and invisibles receipts provide a critical buffer against periodic merchandise trade shortfalls.
Broad-based merchandise export growth across electronics, engineering, and petroleum conf…: Broad-based merchandise export growth across electronics, engineering, and petroleum confirms underlying external trade strength.
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The bank said the widening in the goods trade deficit largely reflected seasonal trends, with half of the $10 billion month-on-month increase coming from a higher gold deficit, suggesting a delayed pickup in festive demand. The increase in gold imports, however, remained below historical trends, limiting concerns over a more persistent deterioration in the external balance.
Also Read: India’s October merchandise trade deficit widens to one-year high of $39.88 billion as imports surge
Axis Bank said the easing in oil prices and a strong return of foreign portfolio flows had helped contain near-term pressure on the rupee. FPI inflows stood at $9.6 billion month-to-date in November, while the 12-month rolling average of forward crude oil prices had moderated to around $87 a barrel.
The improvement comes after the rupee faced pressure during the July-September quarter, when sustained outbound investments, softer net income and transfer receipts, and FPI outflows weighed on the currency. These pressures persisted despite large one-off capital flows linked to the foreign currency non-resident (FCNR) deposit scheme, the report said, citing the Reserve Bank of India's September balance…
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