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Analysts at Nomura note that India’s export growth moderated to 14.3% y-o-y in July from 18% in June, while import growth increased to a 14-month high of 28.8% from 19.5%, contributing to a record-high trade deficit of USD18bn from an upwardly revised USD17.1bn in June (from USD16.6bn previously).

Key Quotes

“Core (non-oil, gold) import growth sharply increased to 18.4% from 8.4% in June. We estimate that the recent recovery in both exports and imports is driven by a pickup in volumes. However, we believe that downside risks to export growth remain due to weaker global growth outlook, although currency depreciation is a tailwind at the margin.”

“Import growth is likely to remain elevated in the near-term due to high oil prices, but we expect weak rupee and domestic slowdown to moderate imports in coming quarters.”

“Overall, we expect the current account deficit to widen to 2.8% of GDP in FY19 from 1.9% in FY18.”

“We expect balance of payment (BOP) funding to remain a challenge in FY19 as the basic BOP (current account + net FDI) is negative and portfolio flows also remain negative.”