India trade weakness continues

India's goods trade deficit came in at USD12.5bn for August. The performances of both exports and imports remained in negative territory, with exports falling by 20.7% y/y while imports were down by 9.9% y/y. Gold imports rose sharply to USD5bn in August, likely due to the wedding season being earlier this year. Oil imports and petrochemical exports continue to be low, on the back of lower crude oil prices. 

Also, a continued improvement is seen in capital imports such as transport goods and electronic goods, likely reflecting improving growth. As such, the non-oil, non-gold trade deficit remains large, it might have fallen to USD3.5bn in August, from USD4.1bn in July.

"Within services, the trade surplus remains resilient, rising to USD5.9bn in July. The current account deficit came in at USD6.2bn in Q2 2015; the deficit is expected to widen marginally in Q3 2015, as per our tracking estimate. Overall, we think India's external sector remains comfortably placed to face rising volatility, while the recent decline in commodity prices should support an improvement in 2HFY15-16", says Barclays.

Fiscal year to date (April-August), the trade deficit stands at USD57.9bn, compared with USD57.5bn last year. The improvement in the oil trade balance has been offset by higher gold and capital imports, along with weakness in exports. 

"A recovering growth backdrop is likely to result in a larger import bill, but we still expect India to register a modest current account deficit of around USD20bn (0.9% of GDP) in FY15-16", added Barclays.