After an abnormally high deficit in July18, the current account deficit declined in August. The CAD was the highest ever monthly number in July at $ 2.1 billion which is down to a mere $ 0.6 billion in August. This takes the two months toll at $ 2.7 billion ( 5.3% of GDP) which is up by 10 percent year- on - year. Details show that there are significant dips in various heads of imports suggesting that the deliberate efforts to slowdown the economy are finally working. The imports of goods fell by $ 1 billion from July to $ 4.5 billion in Aug18. The imports picked up pace in 2HFY18 and so did the CAD; the good news is that imports are down by 9 percent from average monthly imports in 2HFY18.
The lower imports in Aug18 are attributed to adjustment in petroleum imports which were abnormally high in July18. The fall in imports is consistent in key other groups which are demonstrating the impact of currency depreciation, interest rates hike and other import curbing measures such as regulatory duties. In case of food imports, jul- Aug18 average imports are down by 6 percent from the monthly average of 2HFY18 ( Jan- jun18). The trend is even better in machinery imports where the respective fall is 22 percent - all kind of machinery including power generation, electrical machinery, telecom, textile, agriculture and construction are down by over 20 percent.
This shows that economic expansion cycle is receding as no new power project is likely to be announced while the private sector exuberance to expand is fading away too. That is good and bad news at the same time - the good part is that there is some release of imports pressure while the bad part is that the economy is not gearing up to absorb 10 million new jobs in five years. It may be added here that the economy has gained a size that imports even after slowdown are high enough to haunt the policymakers. Almost all import heads have shown negative growth in Jul- Aug versus Jan- Jun but petroleum group where average monthly imports are up by 38 percent. The new power plants have come up, the number of automobiles on the road has multiplied, and the reliance on RLNG is increasing. These will keep the petroleum imports up unless oil prices go down.
According to experts, the government should try to get loans from China, KSA, others and probably the IMF to get a breathing space of 6- 12 months and work on building export competitiveness in the process. Exports marginally picked up in the 4QFY18 ( Apr- Jun18) due to cash injection and some release of refunds took place in 3QFY18. Mar- May18 was best time for exports where the monthly average was $ 2.27 billion which is down by 10 percent in Jul- Aug monthly average to $ 2.05 billion. There might be some pick in exports in Sep- Nov due to Christmas related seasonal orders.
The exporting industries are likely to do well as they are getting gas at more competitive rates. This coupled with lower duties on intermediate goods and raw material imports for re- exporting purposes can bode well for exports. The other silver lining is the rise in remittances this year so far - in July it was seasonal factor that took the monthly inflow to $ 1.93 billion and it was expected to tone down in August. However, the figure crossed $ 2 billion in August. If remittances move up to $ 2 billion per month and exports touch $ 2.2 billion per month, curtailing imports to $ 4.6 billion, this will keepthe monthly CAD at $ 1 billion.