The India Ratings and Research (Ind-Ra), a subsidiary of Fitch Ratings, has stated that India's trade deficit will widen to a four-year high of $178.1 billion or 6.4% of Gross Domestic Product (GDP) in 2018-19 (FY19), due to rupee depreciation coupled with higher crude and gold imports. Besides, trade deficit had stood at $156.8 billion or 6% of GDP in FY18. The estimate comes amid depreciation in the rupee against the dollar, wherein it has shed over 5% to breach the Rs 67-mark to the dollar.
The rating agency has said that factors which are putting pressure on the rupee include escalation in commodity prices, particularly crude, coupled with expectation of the US Fed raising its rates further. It also said that due to sluggish growth in export markets and rising protectionism for the dip, contribution of trade as a percentage of GDP has slid to 40.6% in FY18 from a high of 55.8% in FY13.
Talking about exports, Ind-Ra said that the recent Reserve Bank of India (RBI) ban on letter of undertakings will not significantly hurt the overall export performance. It added that the ban will impact those export items where inputs or intermediates are imported, due to higher import financing cost and cited the example of the fraud-hit gems and jewellery sector exporters, as the ones who will be highly affected by the LoU/LC ban.