India’s exports grew 5.71% in December 2016, the fourth straight month of positive growth. Exports had continuously fallen for almost two years prior to September 2016. The growth in exports is a positive reflection on the strength of the global economy and on India’s competitiveness in global trade. China’s exports on the other hand have been fluctuating with a downward trend.
On a cumulative basis, exports have just kept its head above water with a 0.75% growth in the April-December 2016 period. Imports rose by 0.44% in December 2016 and fell by 7.41% in the April-December 2016 period. Non oil imports fell 6.4% while oil imports fell 10.77% on a cumulative basis. Gold imports fell by 34.45% in the April-December 2016 period. Trade deficit fell 23.5% on a cumulative basis.
Rising exports is highly positive for the economy as production capacities start getting utilized and businesses start to invest for growth. India has benefitted from low oil prices that are down over 50% from levels of USD 100/bbl seen a couple of years back as this has brought down trade deficit. Oil imports as percentage of total imports has come off from over 30% levels to around 22% levels. Falling oil imports help India conserve foreign exchange and build up reserves to strengthen its external economy. India’s external debt ratios have improved over the last one year and this is positive for the currency and capital flows. Read our analysis on India’s External Debt.
India’s improved external economy will negate the short term negative effects of demonetization. India’s GDP growth forecast for this fiscal year 2016-17 has been lowered from 7.6% to 7.1% post demonetization. Economic data shows sharp fall in industrial production growth on a month on month basis while vehicle sales fell in December 2016, reversing a good growth trend prior to December. Bank credit growth was at an anemic 5.66% in December 2016.
On a positive front, India’s tax collections have grown as per budget estimates and are on track to meet the budget numbers. Direct tax collections have growth 12% in the April-December 2016 period while indirect tax collections have grown by 25%. The government is working hard to bring in the GST in its budget for fiscal 2017-18.
The budget for fiscal 2017-18 to be presented in the parliament on the 1st of February 2017 will be a very crucial budget for the economy. Expectations of tax cuts, higher spending and reforms will drive positive sentiments in the markets into the budget but any disappointment can really puncture the sentiments. Demonetisation has temporarily lowered growth prospects for the economy and requires to be repaired quickly.
