Commodity prices to widen trade deficit

Mumbai: The trade deficit is expected to widen further from November’s 2.29 per cent at $13 billion, due to the rise in commodity prices.

Earlier it was the demand for gold imports that contributed to the trade deficit but if the demand for gems & jewellery exports remains sluggish in near term and given the slackness in the domestic gold consumption outlook (a repercussion of demonetisation impact), then in the near term there could be some moderation in gold imports.

“The widening of trade deficit since March is primarily due to rise in commodity prices which is in sync with our earlier prognosis of higher impact of increase in commodity prices on imports relative to the exports,” said Mr Dhananjay Sinha, head, institutional research, Emkay Global Financial Services Ltd.

Overall trade has shifted in favour of advance countries particularly US and Europe while remaining weak for emerging Asia, which faltered further from both the imports and exports fronts, he said.

India’s net services exports remained at $5.4 billion in October but services exports continued to drop. The current reading is that CAD could widen in the second half of 2017 to 1.0-1.2 per cent and decelerating structural support to finance the CAD, he said.

Mr Rajesh Iyer, head, Investment advisory services & family office, Kotak Wealth Management however feels a potentially weak rupee coupled with a potential expansionary US fiscal policy could actually make export plays interesting in 2017. He says 2017 starts with many uncertainties like divergent monetary polices by global central banks, a new US government etc as well as new opportunities to pick long-term investment themes.