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Rupee depreciation leading to incremental trade deficit of $4 billion in H1FY19: SBI Research
Oct-19-2018

Amid continues fall in Indian currency, the State Bank of India in its latest research report stated that depreciation of rupee has neither helped in improving exports nor in slowing imports, leading to an incremental trade deficit of $4 billion in the first half of the current fiscal (H1FY19). The research report 'Ecowrap' based on an analysis of both export and import intensive industries during April-September 2018 concluded that rupee depreciation has not helped exports as is widely believed.

The report said ‘In effect, this means we are having a situation of declining exports and increasing imports. We estimate that the net incremental impact on trade deficit is $4 billion.’ It said thus, the common refrain that rupee depreciation will lead to export increase and import decline stands challenged.

Ecowrap further said month wise External Commercial Borrowing (ECB) data suggests, during March-August 2018, industries like petroleum, NBFCs, power, telecommunication and automobile are heavily borrowing through automatic route and aggregately contributing more than 71% of total borrowing. So, any depreciation in rupee will have significant impact on their bottom line if the corporates have not adequately naturalised their risk through hedging.

According to the commerce ministry data, India's exports entered the negative zone after five months, contracting 2.15% in September to $27.95 billion due to dip in shipments in key sectors, including engineering and gems and jewellery, even though trade deficit narrowed to a five-month low. Imports in September grew by 10.45% to $41.9 billion.

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