Trade deficit dipped to a three-month low in December (USD21.9bn) on the back of sequentially lower imports and higher exports. Gold imports declined to USD4.7bn (Nov: USD9.8bn). Data revisions for FY25, especially for gold imports, have led to total FY25 imports dropping by USD11.7bn, with the deficit also being lower by USD12.6bn. Services surplus rose marginally (USD15.1bn), while November was revised sharply downward. With these data revisions, we reduce FY25E CAD/GDP to 0.9%, with strong net services exports still offsetting the higher gold imports. Deficit dips to three-month low on lower imports The merchandise trade deficit dipped to a three-month low of USD21.9bn in December, after data revisions for FY25 showed significantly lower imports in previous months, especially gold imports. The November deficit was thus revised downward to USD32.8bn from USD37.8bn. The lower deficit in December was due to a sequential rise in exports (USD38bn, 18% MoM, -1% YoY), while imports fell (USD59.9bn, -8% MoM, 5% YoY). Lower gold imports drove the decline in imports (USD4.7bn vs downward-revised USD9.8bn in Nov). Oil imports were also lower (USD15.2bn vs USD16.1bn), while oil exports rose (USD4.9bn vs USD3.7bn). Heavy revision of gold imports brings down total FY25 imports Gold imports have been heavily revised downward, with November’s earlier record import level of USD14.9bn being corrected to USD9.8bn â€" lower by USD5bn. Nevertheless, November’s gold imports remain a record high, with August’s level of USD10.1bn also being corrected to USD8.6bn. So far, FY25 gold imports in total have been brought down by USD11.7bn. Silver imports have also seen revisions, albeit on a smaller scale â€" FY25 imports have been lowered by USD0.7bn. As a result of these corrections, total imports are lower by USD13.3bn â€" with exports being lowered by USD0.6bn, the FY25 goods trade deficit is lower by USD12.6bn. Services surplus rises marginally; Nov revised downward Services trade surplus for December rose marginally to USD15.1bn, from the downward-revised USD14.8bn in November (USD18bn earlier). Thus, the surplus for 9MFY25 is at USD131bn, ~9% higher than last year’s. Exports (USD32.6bn) rose only 2% MoM, with imports (USD17.5bn) rising at a similar rate. While services exports are likely to be robust for FY25E, growth has slowed down recently, led by software services in a mid-single digit, while non-software services continues to see healthy growth. FY25E CAD/GDP reduced to 0.9% The sharp downward revision in gold imports leads us to reduce FY25E CAD/GDP to 0.9%, despite downward revision in the November services surplus as well. In spite of this revision, net services exports growth will remain better-than-expected. Oil imports are likely to rise only ~4% in FY25E, despite the recent uptick in Brent prices. Non-oil exports have also shown healthy growth thus far, led by Electronics amid the continued smartphone export boom, and we expect this to rise ~5% YoY. With non-oil imports expected to rise at a lower rate (~4% YoY), goods trade deficit/GDP should track at ~7.1% (FY24: 6.9%). Separately, still-robust services exports, including IT Services and the solid emerging space of GCC-led business consulting and financial services, will continue to help prop up the current account (non-software net exports tracked over-72% growth in FY24). Growth in non-IT Services should remain strong in FY25E as well (~40% YoY), even as IT Services exports growth could moderate to a mid-single digit and remittances may be flat. With capital flows in equities turning negative in FY25E (while index-led debt flows remain healthy), BoP could move to a mild deficit. FDI flows will stay tricky (with slower growth in global FDI as well), but India remains the top global greenfield project destination (despite slower flows in FY24) and may see flows improve. Overall, we see financing needs as manageable, while the external environment is volatile, with various push-and-pull factors likely to play out over the rest of the year. Click here to download full report |
