Overview

• Merchandise exports¹ declined 0.7% on-year in March, compared with 4.5% growth in February. This is the fourth consecutive month of slowdown in exports growth.
• While growth in imports also slowed for the fourth straight month, it continued to outpace exports growth. Imports grew 7.1% in March, compared with 10.4% in February. Trade deficit stood at $13.7 billion, which is $1.7 billion higher on-month and $3 billion higher on-year.
• The sharper fall in exports from major labour-intensive sectors – gems & jewellery and readymade garments – was the key factor behind decline in overall export growth. In addition, exports of petroleum products declined despite a rise in oil prices in the month.
• In fiscal 2018, exports grew an average 9.9% on-year, or less than half the 21.2% growth in imports. As shown by the chart below on the left, poor performance of the labour-intensive sectors has been a drag on export growth throughout this fiscal. On the other side, the import growth in this fiscal has been broad-based, with the drivers of growth being oil, gold, and electronic goods. Trade deficit, which was on a declining trend for the past four years, has widened $52 billion on-year in fiscal 2018 to $160 billion.
• We expect trade deficit to widen further in fiscal 2019 as the rise in oil prices and improvement in domestic demand will keep import growth higher than export growth. While exports will benefit from continued strengthening of global growth, persisting GST-related disruptions can pose downside risks. Due to these factors, we expect current account deficit to increase to 2.5% of GDP in fiscal 2019 from an estimated 1.9% of GDP in fiscal 2018.