The current account posted a deficit of $269 million in Jan 2024 against a surplus of $404 million during Dec 2023. The overall 7MFY24 deficit is to stand at $1.1 billion – down by 71 percent from the same period last year. Market participants had expected a slight surplus in Jan 2024 based on the trade data published by PBS (based on actual imports). However, there might be some backlog of payments in Jan 2024 which resulted in higher import payments. If things continue the way they are, expect a marginal current account surplus in Feb 2024. And the overall balanced (or nearly balanced) current account policy continues.
The goods imports stood at $4.5 billion in Jan 2024, which is 10 percent higher than the toll in Dec 2023. However, 7MFY24 imports are down by 11 percent to $29.8 billion. Import compression and demand suppression are both at play. Based on these two factors – subject to oil and other commodity prices remaining rangebound – the monthly import bill will continue to hover around $4-4.5 billion.
Food imports inched up in Jan 2024 to $695 million (26 percent increase on MoM basis) – driven mainly by higher palm oil and other food items bills. PBS data suggest that there is some increase in other food items while there is no blip in palm oil imports. In 7MFY24, food imports are down by 18 percent to $4.2 billion.
Machinery imports are inching up, as the restrictions on Chapter 84 and 85 imports are being completely lifted. Interestingly, most of the increase is in mobile phone imports – up by 2.4x to $988 million in 7MFY24 (PBS data). Barring mobile phones, machinery imports are flat, suggesting there is low demand of new machinery, as the backlog keeps on clearing.
There is no pick-up in the transport imports as rising car prices (due to higher taxation and currency depreciation) and overall falling purchasing power has significantly dented the transport sector – imports are down to one-third from its peak and are even lower than the last year when the payments were restricted to 50 percent quota.
Petroleum imports picked on a monthly basis, up by 16 percent to $1.43 billion (although the PBS data suggests a decline). The overall petroleum imports are down this year so far, based on both falling demand and lower international prices – down by 22 percent to $8.8 billion in 7MFY24.
The story of exports is interesting. Exports (on payment basis) is up by 9 percent to $18.0 billion in 7MFY24. Within it, there is a decline in textile (down by 7 percent) and other manufacturing while the food (up by 58 percent) and other imports are picking up. The data on the IT exports is encouraging too – up by 13 percent in 7MFY24 to $1.7 billion.
With falling domestic demand and currency devaluation, exports are becoming viable for businesses earlier catering to the domestic market, and new export avenues are being explored. In food, there is one time rise in rice exports, as India is temporarily out of the market. The question is how much of it will sustain. However, there are some new areas of exports that are growing too.
The problem is that growing energy prices are taking away the other advantages – that is the case in textile and other traditional export sectors, and it’s hindering manufacturing, that caters to domestic industries and explore exporting markets.
The overall good and services trade deficit has reduced by 22 percent to $13.5 billion. The benefits of improvement are partially offset by sluggish performance in primary and secondary income accounts. The primary income deficit has worsened by 40 percent as the interest cost on external debt is growing due to higher global interest rates. Moreover, a fall in home remittances (down by 3 percent to $15.8 Bn in 7MFY24) has muted the growth in secondary accounts.
The story is simple. The current economic structure cannot afford a current account deficit due to external sector vulnerabilities, and the economic growth remains muted. To spur growth, exports ought to grow – and for that to happen, energy sector reforms are imperative to lower the prices.
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