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Financial News: India's Trade Deficit Likely To Remain Under Control:

India's Trade Deficit Likely To Remain Under Control: Capital Economics

08/18/2017 - 08:41:00 (RTTNews)

(RTTNews) - The narrowing in India's trade deficit in July and a number of factors should ensure that it remains in check over the coming months, Shilan Shah, an economist at Capital Economics, said.

"This should keep India's financial markets relatively secure in the event that global investor sentiment turns against emerging economies," Shah said.

The seasonally adjusted trade deficit narrowed to $11.4 billion in July from $13.0 billion in June, official data showed on August 14.

The deficit remains substantially lower than what it was at the peak in dollar terms a few years ago, Shah observed.

The economist also pointed out that there was little reason to think that the deficit will turn into a cause for concern over the coming months.

Looking ahead further, imports of key commodities should remain in check, Shah said.

"Admittedly, we expect a slight recovery in the price of Brent crude, to $60pb by end-2017 from $51pb currently."

However, Capital Economics' commodities team have revised down their oil price forecasts for end-2018 to $55pb from $60 pb, due in large part to the impact of rising US shale production.

The latest fall in gold imports and lower local premiums on gold prices suggest that the underlying demand for the precious metal is not particularly strong, Shah said.

Besides this, the introduction of the Goods and Services Tax at the start of July is also likely to be disruptive to the gold market, as the overall tax rate on precious metals has risen by 3.0 percent, the economist pointed out.

"The upshot is that India's trade deficit is set to remain in check, which should help ensure that the overall current account position doesn't return as a major vulnerability," Shah said.

Capital Economics expects the current account deficit to remain comfortable between 1.0 percent and 1.5 percent of GDP over the coming years.

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