Trade deficit to widen to a four-year high: Report

India’s trade deficit is expected to widen to a four-year high of 6.4% of GDP in 2018-19 to $178.1 billion as the import bill increases because of a rise in oil prices and a weakening rupee, says a report by India Ratings & Research released on Thursday.

The report comes at a time when the rupee has depreciated to a 15-month low against the U.S dollar.

“Rising trade deficit, escalation in commodity prices—particularly oil—mainly due to higher global demand in general and the US sanctions on Iran, coupled with the expectation of the US Federal Reserve raising its rate further, is exerting pressure on the rupee,” the report says.

The deficit, the gap between imports and exports, was at 6% of GDP, or $156.8 billion, in 2017-18 due to a sharp rise in oil and gold imports.

The report said a 25.7% surge in petroleum/petroleum product imports coupled with a 32.1% rise in gold, silver and precious stones imports, led to a 19.7% increase in overall imports to $459.7 billion in 2017-18.

India continues to have an unfavourable balance of trade with China, its leading trade partner, driven by imports . Key imports from China comprise telecom instruments, electronic components and computer peripherals. The report expects this import pattern to continue in the near term.

On the other hand, exports registered a 10% year-on-year growth to $302.8 billion for 2017-18 . “Despite double-digit growth, exports in 2017-18  were lower than 2015-16 exports. FY18 exports growth was on the back of revival in exports of petroleum products (24.2% ), organic/inorganic chemicals (29.6% ) and engineering goods (17.6% ),” says the report.

The demand was largely driven by orders from Asian countries such as Bangladesh, Vietnam, and Nepal, as well as from the US, but recovery in global demand will critical for future meaningful growth of exports, the report notes.