India: FY20 BoP likely to improve sharply – Standard Chartered

Standard Chartered analysts are now expecting a higher FY20 BoP at USD 20bn, versus their previous estimate of USD 15bn, on expectations of increased capital inflows amid a low-for-longer monetary policy by major central banks and mandate for a strong government in India.

Key Quotes

“We maintain our C/A deficit projection at USD 70bn (2.3% of GDP) amid expectations of contained oil prices.”

“Our analysis of FX reserves (adjusted for valuation effects) indicates a double-digit BoP surplus (USD 13bn until 20 June) in Q1-FY20, despite the seasonal deterioration in the trade deficit. The Reserve Bank of India (RBI) conducted USD 5bn of FX swap auctions in Q1-FY20; this may have boosted the BoP surplus.”

“Our analysis of benefits to India from the US-China trade war indicates that India’s share of US imports of tariffed products rose marginally. However, as the tariffs have been in place for only a short period (October 2018 to March 2019), we await more data to draw firm conclusions.”

“Separately, India’s aggregate trade surplus with the US declined in FY19 on higher crude oil imports by India from the US. Its trade deficit with China narrowed significantly after having widened in FY18 on increased electronic imports. However, India’s combined trade balance with China and Hong Kong remained unchanged in FY19 versus FY18.”