India can sustain trade deficits of $15-16 bn, rising it to $20 bn would be concern: Barclays

The trade data for September contain some shockers, as the monthly trade deficit has increased to the all-time high of $22.94 billion, largely because of high monthly imports by India.

Imports for September have been at $56.38 billion, the highest ever monthly imports.

Key imports that have shot up are crude and petro products, coal, edible oils and metals. The possible reasons for this spike could be that prices of these commodities rose in global markets or it could also be because India has imported more volumes due to a recovering economy.

Total imports in September are 20 percent higher than August and of course some 80 percent more than a year-ago period. The crude import bill has increased by 50 percent as compared to last month, and 3 times higher than last year; while coal import bill is up 12 percent over August and nearly double of last year. Edible oils bill is also up 50 percent in September as compared to August and double of last year.

Metals imports bill is up 26 percent in September over the previous month and nearly 50 percent year-on-year.

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Export numbers are steady at $33.44 billion in September, which are similar to August and continue to show excellent growth over the previous two years.

A runrate of nearly $17 billion is not likely to be sustained in terms of oil imports.

“Unless and until we see a big increase coming through in the exports as well, which I suspect would partly be the case that with the global demand for refined oil increasing at the margin, we might be seeing India exploring or some inventory rebuilding being taking place particularly at some of the private refineries where we do have capacity to export in substantial amounts,” said Rahul Bajoria, Chief India economist at Barclays.

According to him, barring this particular print, the average runrate of the trade deficit should be in the vicinity of $15-16 billion.

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“India can very consistently run trade deficits of nearly $15-16 billion without being worried about financing risk. The concerns might start rising if we are doing $20 billion plus of trade deficit on a regular basis,” he said.

“That is a sustainable amount for India in the current context. With our exports doing well, maybe there is a bit of optimism around inventory rebuilding and a lot of working raw materials are also being imported. So, while we did see a bit of a widening in the oil side, even within the core trade deficit, there was a bit of widening which probably is a reflection on the growth outlook as well,” he explained.

MK Surana, CMD at Hindustan Petroleum Corporation Ltd (HPCL), doesn’t see a jump in consumption all of a sudden.

“Consumption of petrol is up 3.5 percent compared to last month, ATF is 9.64 percent and LPG is 5.9 percent. There is overall 6.6 percent increase in the total consumption pattern,” he said.

Crude prices have gone up $3-4 per barrel in a month. There was a substantial rise in liquefied petroleum gas (LPG) and liquefied natural gas (LNG) prices.

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“We need to analyse the other data,” he said.

"LNG should comprise nearly $1 billion in the total basket and LPG, the company imports nearly 15 million tonne a year – so maybe 1.2 million tonne per anum and nearly $700 per tonne. “All these products put together, it should make a difference of nearly $1.5 billion,” he said.