Further, Chakrabarty believes that the volume growth for oil exports is coming down which is positive but that could be due to the subsidies being phased out. "We still have a long way to go in terms of further elimination of subsides to see this volume growth come down further," he adds. However, Chakrabarty is worried about the oil exports that are coming down year over year and blames it for worsening of the trade deficit.
Below is the verbatim of Samiran Chakrabarty's interview on CNBC-TV18
Q: What is your reaction on the trade deficit which is still ugly at USD 20 billion, perhaps the one silver lining is that exports finally are not down year on year?
A: This is also a negative number because we anticipate the trade deficit numbers to improve in Q4, but we have seen a deterioration of about USD 2.5 billion from the December print. So this is not a good number. It could be because of higher gold imports in anticipation of higher import duty, but still a USD 20 billion trade deficit does not auger well either for the currency or for the CAD.
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Q: We have the oil import bill now separately coming in. The January oil import at USD 15.9 billion is up 6.9 percent year on year. Does that indicate a falling trend?
A: From September, the volume growth is coming down on oil imports which is a positive. It could be because of the subsidies being phased out but we still have a long way to go in terms of further elimination of subsides to see this volume growth come down further.
On an average we see about 3-5 percent volume growth in a year but this time around the growth in value terms is much higher. What is even more worrisome here is that oil exports are coming down year over year so that is complicating the problem further. However, overall, I am not yet comfortable on the oil front. This is the main culprit behind the worsening of the trade deficit.
Q: Would you extrapolate the January figures in terms of the trade deficit as well as the current account figure which is going to be worse than what the street was anticipating for Q4? Would it change your estimates, do you think if January might be replicated, things might be worse in February and March as well?
A: Yes, it could be because on an average the monthly trade deficit is USD 1-1.5 billion lower every month for Q4. This time around, this number has been up about USD 2-2.5 billion compared to the average of Q3. So, that is beating the trend and that would make us revise our Q4 numbers upwards on the trade deficit front and the overall CAD as well.
Q: How would you evaluate what the RBI governor will make of this USD 20 billion, it doesn't auger well in terms of maybe a fall in the CAD even in Q4?
A: The January statement indicates hope on the RBI's part that Q4 would see some improvement in CAD. As of now, the data point that we have got for January does not indicate that Q4 is any better than Q3. So that hope seems to be misplaced now and by March policy, we will get one more trade data print for February. If this trend continues in February as well, then this could be the deciding factor for the March policy.
Q: Do you expect more policy moves on curbing gold import because exports have turned their corner and the problem continues to remain on the import front which is very high bill and higher on a month on month basis? Do you think the RBI might start and further clamp down on gold import and any other kind?
A: Contrary to the street, we don't think that at least for this year's trade deficit gold is the primary factor. The gold trade deficit has declined this year compared to last year. We are barking up the wrong tree if we harp too much on the gold imports side. It is primarily oil and other kinds of imported items where the pressure is coming from. So, trying to reduce just the gold import is only going to be cosmetic. The root of the gold import problem is financial repression, high inflation, high interest rates leading to capital flight but unless that gets controlled, I don't think just increasing import duty will take us any further.
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