Economy News

“Net exports” seen a growth driver in current quarter; Foreign trade was a drag on GDP for three quarters in a row

Economists forecast Q4 GDP growth to be significantly higher than NSO estimate of 5.9%.

India’s foreign trade is likely to push the country’s gross domestic product (GDP) growth by about 0.3-0.4 percentage points (pps) in Q4 FY24, after being a drag for three consecutive past quarters, economists reckon.

“For the first time this fiscal, we anticipate foreign trade to contribute positively to the March quarter’s GDP, with exports of goods and services being valued higher than the imports,” said a note by the Centre of Monitoring Indian Economy (CMIE). In Q1, Q2 and Q3 of the current fiscal, net exports contribution to GDP growth was (-)5.5 pps, (-)1.8 pps, and (-)1.2 pps, respectively.

Typically, India maintains a merchandise trade deficit, while services trade is in surplus. On a net basis, the country’s foreign trade in both goods and services turn out to be surplus in some quarters and deficit in others. Inflation and the value of the rupee are key determinants too.

In January-February, the country’s overall trade deficit – including merchandise and services – stood at $2.7 billion, much lower than $8 billion in the comparable period of FY23. Overall exports in the first two months of March quarter rose 11.7% on year, while imports grew just 7.2%.

Even though CMIE has not the estimated net exports print for March, it expects “net exports to be in surplus in the March 2024 quarter”. This means, March may witness significant trade surplus.

The National Statistical Office (NSO), however, has projected net exports to contribute negatively to GDP growth by 1 percentage point in Q4 FY24. According to the second advance estimates (SAE), India’s GDP is seen growing 5.9% in Q4, which is sharply lower than the projections of several economists, and also the Reserve Bank of India (RBI).

According to the RBI’s nowcast model India’s economy is expected to grow 7.2% in Q4, which will take the full year’s growth to 8%, much higher than the 7.6% growth projected by the NSO. CMIE sees the Q4 growth at 6.7%.

“NSO has already accounted for improvement in trade balance in the current quarter, even as some further upside is difficult to rule out,” said Abhishek Upadhyay, senior economist, ICICI Securities Primary Dealership. Upadhyay, however, didn’t give any estimate as he said that “extrapolating monthly trade data to assess impact on real GDP growth is complicated by the role of deflators that are difficult to get a handle on.”

Swati Arora, economist, HDFC Bank says that going by the SAE, net exports are likely to be “less” of a drag on GDP in Q4. IDFC FIRST Bank Economist Gaura Sen Gupta said that based on January-February overall trade data, “the drag from net imports should be less with a surge in services surplus on a Y-o-Y basis.”

Meanwhile, even as there is a possibility that overall GDP growth may be better than implied by the NSO, it is more likely to be a result of stronger consumption demand rather than trade balance, say economists.

The NSO has projected private final consumption expenditure (PFCE) to grow merely 1% in Q4 FY24. Barring the first two-quarters of the pandemic year FY21 – the projected 1% growth would be the lowest in 46 quarters. However, economists say PFCE might grow around 3.5-4% in Q4, thereby supporting growth. In April-December, PFCE grew 3.8%.

The RBI in its March bulletin said that Purchasing managers’ indices (PMI) reflect buoyant demand conditions, rising investment in technology, efficiency gains and favourable sales growth. “The overall level of business confidence points to robust optimism about nearterm prospects,” it said.

Leave a Reply

Your email address will not be published. Required fields are marked *