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‘Falling Re to take FY19 trade deficit to 4-year high of 6.4%’

Friday, May 11, 2018

Continuing fall in the rupee will push trade deficit up to a four-year high of USD 178.1 billion or 6.4% of GDP this fiscal year, says a report.

"Trade deficit will widen to a four-year high of 6.4% of GDP in FY19," India Ratings said in a report yesterday and blamed higher crude and gold imports. In FY18, trade deficit had stood at USD 156.8 billion or 6% of GDP.

The estimate comes amid a depreciation in the rupee against the dollar, wherein it has shed over 5% to breach the Rs 67-mark to the dollar.

The agency said apart from the risk of wider trade deficit, escalation in commodity prices, particularly crude, coupled with expectation of the US Fed raising its rates further, is exerting pressure on the rupee.

The agency said contribution of trade as a percentage of GDP has slid to 40.6% in FY18 from a high of 55.8% in FY13, blaming sluggish growth in export markets and rising protectionism for the dip.

On the exports front, it said the recent RBI ban on letter of undertakings will not significantly hurt the overall export performance.

The ban will impact those export items where inputs or intermediates are imported, due to higher import financing cost and cited the example of the fraud-hit gems & jewellery sector exporters, as the ones who will be "highly affected by the LoU/LC ban".

In FY18, there was a 25.7% surge in petroleum product imports coupled with a 32.1% rise in gold, silver and precious stones imports which led to the overall import registering a growth of 19.7% at USD 459.7 billion.

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