January 2015

CRISIL Economy First Cut

Trade: Oil keeps trade deficit under check
Merchandise trade deficit narrowed to $9.4 billion in December from $10.1 billion a year ago. While exports fell by 3.8%
y-o-y, imports also contracted by 4.8% y-o-y, led by a sharp decline in oil imports. With oil prices falling to $62.3/barrel
in December 2014 vis--vis $110.7/barrel a year ago, oil imports witnessed their sharpest decline (28.6% y-o-y) since
2009. However, falling prices also impacted exports of petroleum products (-21.2% y-o-y), which account for 20% of
Indias total merchandise exports (Figure 1). Exports excluding oil, also witnessed muted growth at 0.2% y-o-y in
December, reflecting weak global demand conditions. In contrast, domestic demand seems to have picked-up with core
or non-oil non gold imports recording a growth of 10% y-o-y after contracting for most of FY13 and FY14. For OctoberDecember 2014, trade deficit widened to $39.6 billion from $30.3 billion a year ago, due to higher gold and core imports.
For FY16, average oil prices are expected to be lower than $85/barrel average for the current fiscal. Oil imports
constitute nearly one-third of Indias merchandise imports. Undoubtedly, lower crude oil prices will reduce Indias import
bill in FY16. However, as seen in December, any reduction in the import bill due to lower global crude oil prices will be
partially offset by a simultaneous decline in India exports of petroleum products. On the balance, we estimate that every
$10 decline in average oil prices reduces Indias CAD by $10-12 billion. Lower oil prices also have other implications for
Indias exports. About 20% of Indias merchandise exports are to major oil exporting countries such as the OPEC,
Russia, Columbia, Canada and Mexico (Table 1). The OPEC alone accounts for 18.4% of Indias exports even more
than the Eurozone or US alone. Slowing growth in OPEC countries due to falling oil prices will adversely their import
demand.
The outlook for exports perhaps warrants caution on other fronts as well. Growth in China is expected to slow down in
2015 while the outlook for Japan and the Eurozone has been recently revised downwards by the World Bank (Table 2).
These countries together account for another 20% of Indias exports. The only exception is the US, which accounts for
12% of Indias merchandise exports and around 90% of IT/ITeS exports. The US economy is expected to recover
strongly in 2015. Therefore, while services exports may see strong demand, merchandise exports are likely to remain
under pressure in FY16.

Gold imports stood at $1.3 billion in December a welcome decline from Novembers $5.6 billion, albeit still
higher than $1.2 billion a year ago. The RBI has withdrawn the 80:20 rule restricting gold imports although
import duty still remains at 10%.

Non-oil imports grew by 9.9% y-o-y in December. While gold imports remained in check, rising core imports
drove up overall non-oil imports. This is the eighth consecutive month of expansion in core imports. Sustained
growth in core imports in the past few months suggests that a nascent recovery in domestic demand may have
begun.

Oil imports fell by 28.6% y-o-y in December, For April-December 2014, oil imports have fallen by 4.7% y-o-y
and we expect this decline to steepen in coming months due to the recent sharp decline in oil prices.

Within non-oil exports, electronic good exports fell by 14.2% y-o-y while gems and jewellery fell by 1.1% y-o-y.
However, ready-made garment and engineering goods exports rose by 10% y-o-y and 20.5% y-o-y,
respectively in December.

CRISIL Economy First Cut

Figure 1: Oil drags down imports as well as exports

Table 1: OPEC has large share in Indias exports

Net oil
Share in
exports (% India's
of GDP)
exports

%, y-o-y
oil export growth

50

oil import growth

30

10
-10
-21.2

-30

OPEC

31.4%

18.4%

Russia

13.5%

0.7%

Columbia

7.1%

0.3%

Canada

3.3%

0.7%

Mexico

2.6%

0.6%

Total

20.8%

Dec-14

Nov-14

Oct-14

Sep-14

Aug-14

Jul-14

Jun-14

May-14

Apr-14

-28.6

Source: Ministry of Commerce and Industry, BP statistical review, CRISIL Research

Table 2: Growth outlook for Indias major export partners

Share in
India's
exports

Exports Im ports

Grow th forecats 2015

Jun-14

Jan-15

Eurozone

12.4%

1.8%

1.1%

US

12.2%

3.0%

3.2%

4.6%

7.5%

7.1%

China

Table 3: Indias trade performance (US$ billion)

UK

3.0%

NA

2.9%

Japan

2.1%

1.3%

1.2%

Oil

Non-oil

Dec-13

26.4

36.6

13.9

22.7

-10.2

Jun-14

26.1

38.5

13.3

25.2

-12.3

Jul-14

27.9

40.1

14.6

25.5

-12.2

Aug-14

26.4

37.5

12.8

24.7

-11.1

Sep-14

28.9

43.0

14.5

28.5

-14.1

Oct-14

26.1

39.5

12.4

27.1

-13.4

Nov-14

26.0

42.8

11.7

31.1

-16.9

Dec-14

25.4

34.8

9.9

24.9

-9.4

Apr-Dec FY14

231.8

338.9

122.2

216.7

-107.1

Apr- Dec FY15

241.2

351.2

116.5

234.7

-110.1

Source: Ministry of Commerce and Industry, World Bank, CRISIL Research

Analytical Contacts:
Dharmakirti Joshi

Neha Duggar Saraf

Chief Economist, CRISIL Research

Economist, CRISIL Research

Email: dharmakirti.joshi@crisil.com

Email:neha.saraf@crisil.com

Media Contacts:

Trade

Im ports Im ports Balance

Tanuja Abhinandan

Jyoti Parmar

Associate Director

Assistant Manager

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Communications and Brand Management

Email: tanuja.abhinandan@crisil.com

Email: jyoti.parmar@crisil.com

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