StatsGuru: 07-April-2014

Tracking the turnaround in India's external sector

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By many indicators, India's external sector has turned around in the past year. Last summer, it came under extreme pressure when the US Federal Reserve indicated its quantitative easing would begin to be withdrawn.

As Table 1 shows, the rupee has been stable - even appreciating against the dollar lately, as opposed to the middle of last year. And Table 2 shows that foreign exchange reserves have also been considerably rebuilt. What has changed?

The most important difference, as Table 3 shows, is that the trade deficit has shrunk considerably. As Table 4 reveals, this has been achieved less by a pick-up in exports than by a shrinking of imports. While exports appeared to be growing when the rupee fell, the moment it began appreciating again, exports lost momentum. And, as Table 5 shows, it is non-oil imports in particular that have fallen.

The reason for external stability at the moment is that India's numbers appear strong in comparison to other emerging markets.

Table 6 shows India's growth performance still comes across as relatively strong. And, as Table 7 shows, its latest current account deficit numbers make it seem in control, as compared to South Africa or Brazil.