New Delhi [India], October 19 (ANI): India’s services sector continued to perform well, with services exports rising by 9.8 per cent to USD 180 billion in the fiscal year-to-date, while services imports increased by 9.6 per cent to USD 62.9 billion, according to Bank of Baroda report.
This resulted in a services trade balance of USD 82.6 billion, higher than in the same period last year. However, sequential growth in services exports and imports has been modest.
The current account deficit (CAD) for FY25 is expected to remain within 1 per cent to 1.2 per cent of GDP. Stable Foreign Direct Investment (FDI) flows and strong Foreign Portfolio Investment (FPI) inflows, driven by favorable interest rate differentials and policies aimed at integrating India into global supply chains, will help support the external account.
The delayed start to a monetary easing cycle could postpone the export recovery, but underlying macroeconomic dynamics suggest favorable conditions for trade improvement in the medium term.
The trade deficit may face upward pressure in the coming months, as import growth could outpace the gradual recovery in exports.
Despite the improvement in September, the trade deficit for H1FY25 is higher, signaling potential challenges ahead. The second half of the fiscal year (H2FY25) typically sees an increase in export activity due to seasonal factors, but a full recovery hinges on global economic conditions, which remain uncertain.
This improvement was driven by a significant drop in gold imports, which corrected sharply to USD 4.4 billion from USD 10.1 billion in the previous month.
However, when viewed over the first half of the fiscal year (H1FY25), the trade deficit showed a widening trend, reaching USD 137.4 billion compared to USD 119.2 billion in the same period last year. This increase was largely driven by faster import growth, which outpaced the marginal recovery in exports.
In the April-September period, exports increased by a modest 1 per cent to USD 213.2 billion, a significant improvement over the 8.9 per cent decline recorded during the same period last year.
Growth was led by sectors such as pharmaceuticals, engineering goods, and chemicals. However, exports of agricultural and allied products remained subdued due to inflationary pressures on items like cereals, pulses, and edible oils. On the other hand, textile exports showed some resurgence amid global market shifts.
Among major non-oil, non-gold imports, non-ferrous metals, capital goods, and electronics maintained strong growth, indicating demand for capital investment and consumer spending. Imports of pulses also surged, aimed at bolstering domestic production and controlling inflation.
The import trajectory, however, is expected to remain upward, driven by rising global prices for industrial inputs and metals. While global demand remains soft, particularly in the Eurozone and China, volatility in oil prices could further inflate the import bill.
Persistent gold prices as a hedge against uncertainty and increased domestic demand during the festive season may also add pressure on the trade balance. Furthermore, imported inflation risks could intensify if the Indian rupee remains weak. (ANI)
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