To start with, let us look at trade deficit numbers for various months of last quarter.
Sep 2013 - 6.7 billion USD
Aug 2013 - 10.9 billion USD
Jul 2013 - 12.27 billion USD
Total trade deficit for the quarter ~ 30 billion USD
Indian services have always been surplus in the range of 5-6 billion USD on a monthly basis. That gives us approximately 15-18 billion dollars from services export for the quarter. If we reduce this number, we get a deficit of about 12-15 billion USD.
India is the largest recipient of inward remittances. Indians staying abroad sent approx. 70 billion dollars to the home country last year. That gives us a rate of almost 17-18 billion USD quarterly. If we add that number to the deficit of 12-15 billion USD, we get a net positive number. So, looks like India has finally turned into a current account surplus country. The exports have also grown by double digits in percentage terms for all the three months. If this is sustained, the days of Rupee depreciation are over.
Corrigendum: The calculation above does not take into account outward remittances. Outward remittances are almost to the tune of 35-36 billion USD per annum. So, net inward remittances are approx. 36 billion USD p.a. or 3 billion USD p.m.. So, from the services export and net inward remittances, we get an amount of approximately 8.5 billion USD per month. That will give us a quarterly income of around 25 billion USD. That still leaves us with an current account deficit, but with a much smaller number of 5 billion USD. Even if this rate is retained for next 2 quarters, our current account deficit for the year will be less than 40 billion USD, out of which 20 billion will be done in the 1st quarter. and remaining 15-20 coming in the last 3 quarters. 40 billion USD is just 2% of Indian GDP of 2 Trillion, which is a far better number compared to the 5% that we had. And if the same rate continues in the next year, our current account deficit should be less than 20 billion USD or less than 1% of the GDP .
Corrigendum: The calculation above does not take into account outward remittances. Outward remittances are almost to the tune of 35-36 billion USD per annum. So, net inward remittances are approx. 36 billion USD p.a. or 3 billion USD p.m.. So, from the services export and net inward remittances, we get an amount of approximately 8.5 billion USD per month. That will give us a quarterly income of around 25 billion USD. That still leaves us with an current account deficit, but with a much smaller number of 5 billion USD. Even if this rate is retained for next 2 quarters, our current account deficit for the year will be less than 40 billion USD, out of which 20 billion will be done in the 1st quarter. and remaining 15-20 coming in the last 3 quarters. 40 billion USD is just 2% of Indian GDP of 2 Trillion, which is a far better number compared to the 5% that we had. And if the same rate continues in the next year, our current account deficit should be less than 20 billion USD or less than 1% of the GDP .
4 comments:
As a follow up to above blog:
a. October export, import numbers are out. The trade deficit is at 10.56 billion dollars. This should still give us a trade surplus, as we should get around 12 billion USD from services/remittances. The good news is that exports are up again by around 14%
Now November numbers are out: The trade deficit is 9.22 billion USD. Current account deficit for the month should be less than 1 billion USD. For first two months of this quarter, we get approx. 3 billion USD. If the same rate continues, we will get a deficit of around 5 billion USD.
The bad news is that exports grew only by 6% and moving it to double digit may be needed.
December trade data is out now. The trade deficit is around 10 billion Dollars. This should give us less than 2 billion USD in deficit.That means that for last quarter we have around 5 billion USD in CAD. Now for first 3 quarters, we get a 30 billion USD. At current rate we should end at 35 billion USD vs 88 Billion USD for last year.
The bad news is that exports are up by only 3% at around 27 billion USD. We need to hit 30 billiion USD levels there.
Now January Trade data is out. The trade deficit is around 10 billion USD. This should again give us less than 2 billion USD in CAD. If the same rate continues the total CAD for this quarter will come at around 5 billion USD and overall CAD should be less than 40 billion USD for the year, out of which 20 billion USD came in the first quarter only. That means that in 9 months we will get less CAD than first three months. That is remarkable.
The bad news is that exports are up only 4%.
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