The textile sector grew 9.8% in May, after months of sluggishness. File
| Photo Credit: M. Periasamy

India’s goods exports grew 9.1% to $38.13 billion in May, while imports rose 7.7% to $61.91 billion, Commerce Secretary Sunil Barthwal said on Friday, stressing that things are looking “more optimistic for foreign trade this year”. Even the textiles sector recorded a healthy growth of nearly 10% in May “after several months of sluggishness”, he noted.

However, despite exports growing faster than imports, the merchandise trade deficit surged to a seven-month high of $23.78 billion in May. This was 5.5% higher than the deficit recorded in May 2023, and 24.5% over April’s trade gap of $19.1 billion, which in turn was the highest in four months. Compared with April, May’s import bill was 14.4% higher, while the value of exports rose 8.9%.

Asked if the rising trade deficit could pose a problem, Mr. Barthwal told The Hindu that the trend must be seen in the context of India growing faster than the world, insisting that goods trade deficits should not be viewed in isolation.

High growth, high demand

“Our economy is growing over 7%, while the global economy is growing at about 2.6% so there will always be higher demand from our country for imports of certain kinds of items. When your economy is growing faster than the world, then obviously there will be these twin effects — higher domestic demand will mean less exportable surplus, and your requirements for imports from the rest of the world will be higher than the world’s requirements from you,” he noted.

“The deficit trends will depend on two factors — import substitution and the rate of economic growth. But I don’t consider trade deficit per se as a bad thing, as long as you have foreign investment coming in through FDI, foreign exchange coming in, and you are balancing it through other means. Moreover, if our services exports are growing, we should not be unnecessarily worried about merchandise trade deficit alone,” the Commerce Secretary asserted.

The top Commerce official also highlighted the healthier 7.4% growth in exports of engineering goods in May, with double-digit increases in several segments, including electronics (23%), drugs and pharma products (10.45%), and plastics and linoleum (16.6%).

“We hope this trend should continue this year and also hope that there should be no more geopolitical conflicts and no more disruptions in major global shipping routes,” Mr. Barthwal said.

‘Deficit driven by oil’

Imports of gold hit a three-month high of $3.33 billion in May, although this was 9.7% lower than the gold import bill a year ago. Gold imports had tripled year-on-year in April to $3.11 billion. The value of silver imports shot up by over 400%, while the growth in imports of pulses (181.3%), transport equipment (31.9%), and petroleum (28.1%) also contributed to widening the chasm between exports and imports.

ICRA chief economist Aditi Nayar reckoned that 71% of the month-on-month surge in the trade deficit was driven by the net oil balance. While petroleum imports were $19.95 billion in May, the export figure stood at $6.77 billion.

“With the deficit enlarging by $6 billion in April-May 2024 relative to last year, we expect the current account deficit to rise to around 1.5% of GDP in this quarter from about 1.1% of GDP in the same quarter of 2023-24,” Ms. Nayar said.

Representational image of the seal of the Board of Governors of the United States Federal Reserve System
| Photo Credit: AP

United States Federal Reserve officials will likely make official what’s been clear for many weeks: With inflation sticking at a level above their 2% target, they are downgrading their outlook for interest rate cuts.

In a set of quarterly economic forecasts they will issue after their latest meeting ends, the policymakers are expected to project that they will cut their benchmark rate just once or twice by year’s end, rather than the three times they had envisioned in March.

The Fed’s rate policies typically have a significant impact on the costs of mortgages, auto loans, credit card rates and other forms of consumer and business borrowing. The downgrade in their outlook for rate cuts would mean that such borrowing costs would likely stay higher for longer, a disappointment for potential homebuyers and others.

ALSO READ | Recalcitrant jumbo: Editorial on inflation

Still, the Fed’s quarterly projections of future interest rate cuts are by no means fixed in time. The policymakers frequently revise their plans for rate cuts — or hikes — depending on how economic growth and inflation measures evolve over time.

But if borrowing costs remain high in the coming months, they could also have consequences for the presidential race. Though the unemployment rate is a low 4%, hiring is robust and consumers continue to spend, voters have taken a generally sour view of the economy under President Joe Biden. In large part, that’s because prices remain much higher than they were before the pandemic struck. High borrowing rates impose a further financial burden.

The Fed’s updated economic forecasts, which it will issue Wednesday afternoon, will likely be influenced by the government’s May inflation data being released in the morning. The inflation report is expected to show that consumer prices excluding volatile food and energy costs — so-called core inflation — rose 0.3% from April to May. That would be the same as in the previous month and higher than Fed officials would prefer to see.

ALSO READ | Rationale behind raising interest rates

Overall inflation, held down by falling gas prices, is thought to have edged up just 0.1%. Measured from a year earlier, consumer prices are projected to have risen 3.4% in May, the same as in April.

Inflation had fallen steadily in the second half of last year, raising hopes that the Fed could achieve a “soft landing,” whereby it would manage to conquer inflation through rate hikes without causing a recession. Such an outcome is difficult and rare.

But inflation came in unexpectedly high in the first three months of this year, delaying hoped-for Fed rate cuts and potentially imperiling a soft landing.

In early May, Chair Jerome Powell said the central bank needed more confidence that inflation was returning to its target before it would reduce its benchmark rate. Powell noted that it would likely take more time to gain that confidence than Fed officials had previously thought.

Last month, Christopher Waller, an influential member of the Fed’s Board of Governors, said he needed to see “several more months of good inflation data” before he would consider supporting rate cuts. Though Mr. Waller didn’t spell out what would constitute good data, economists think it would have to be core inflation of 0.2% or less each month.

Mr. Powell and other Fed policymakers have also said that as long as the economy stays healthy, they see no need to cut rates soon.

“Fed officials have clearly signaled that they are in a wait-and-see mode with respect to the timing and magnitude of rate cuts,” Matthew Luzzetti, chief U.S. economist at Deutsche Bank, said in a note to clients.

The Fed’s approach to its rate policies relies heavily on the latest turn in economic data. In the past, the central bank would have put more weight on where it envisioned inflation and economic growth in the coming months.

Yet now, “they don’t have any confidence in their ability to forecast inflation,” said Nathan Sheets, chief global economist at Citi and a former top economist at the Fed.

“No one,” Mr. Sheets said, “has been successful at forecasting inflation” for the past three to four years.

Bengaluru:

India’s economy likely grew at its slowest pace in a year in the January-March quarter due to weak demand, according to a Reuters poll of economists who said the possibility of growth significantly surpassing their forecasts was low.

The country’s gross domestic product (GDP) unexpectedly grew by 8.4% in October-December compared to a year earlier, thanks to a sharp drop in subsidies which provided an artificial boost to net indirect taxes. But economic activity, as measured by gross value added (GVA), showed a more modest 6.5% expansion.

Economists in the poll said that situation was unlikely to have been repeated in the last quarter.

Growth in Asia’s third-largest economy likely slowed to an annual 6.7% in January-March, more in line with the long-term GDP growth rate, according to a Reuters poll of 54 economists. GVA growth was expected to slow to 6.2%.

Most economists in the poll said growth likely slowed due to moderation in both the manufacturing and services sectors. They also cited a muted contribution from agriculture.

Forecasts for GDP growth were in a 5.6%-8.0% range. The data are due at 1200 GMT on May 31, just days before general election results will be announced on June 4. Prime Minister Narendra Modi is expected to win a rare third term in power.

“We expect some sanity to return,” said Kunal Kundu, India economist at Societe Generale. “Among the components, we do not expect any major improvement.”

Over two-thirds of economists who answered an additional question said the possibility of GDP growth significantly surpassing their forecast was low. The rest said it was high.

“Core inflation continuing to drop and recording the lowest growth since the onset of the pandemic is symptomatic of weak domestic demand,” Mr Kundu said.

Weaker growth in private consumption, which accounts for 60% of GDP, was also likely to appear in upcoming quarters.

Economic growth, which likely averaged 7.7% last fiscal year, was forecast to slow to 6.8% this fiscal year and 6.6% in the next, suggesting consistent 8% growth was still some distance away for the world’s fastest-growing major economy.

While most economists reckon 8% or higher growth is needed to generate adequate job growth for millions of young people joining the work force, some are skeptical that can be consistently achieved.

Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, said 5-6% was a “reasonable” potential growth rate for India’s economy.

“For this potential to be reaped, though, reforms need to be pursued, and Modi 2.0 took some steps back on this front – a reversal of agriculture reforms, delay in the implementation of new labour codes and a broad turn away from regional trade agreements.”

A growing divergence between financial economists’ GDP forecasts and government estimates has also raised questions over how India measures growth.

The National Statistical Office (NSO) said it expected GDP growth to be 5.9% in the January-March quarter.

“I think there is a slight overestimation of the informal sector GDP…which is why things on the ground probably do not look as exuberant as the headline numbers suggest,” said Dhiraj Nim, economist at ANZ.

The informal sector contributes nearly half of the country’s GDP and employs about 90% of India’s workforce.

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)

U.S. Treasury Secretary Janet Yellen is headed to a China determined to avoid open conflict with the United States, yet the world’s two largest economies still appear to be hashing out the rules on how to compete against each other.

There are tensions over Chinese government support for the manufacturing of electric vehicles and solar panels, just as the U.S. government ramps up its own aid for those tech sectors. There are differences in trade, ownership of TikTok, access to computer chips and national security — all of them a risk to what has become a carefully managed relationship.

The 77-year-old Yellen, a renowned economist and former Federal Reserve chair, laid out to reporters the issues that she intends to raise with her Chinese counterparts during her five-day visit. Ms. Yellen is headed to Guangzhou and Beijing for meetings with finance leaders and state officials. Her engagements will include Vice Premier He Lifeng, Chinese Central Bank Governor Pan Gongsheng, former Vice Premier Liu He, leaders of American businesses operating in China, university students and local leaders.

Ms. Yellen, speaking to reporters Wednesday during a refueling stop in Alaska en route to Asia, said her visit would be a “continuation of the dialogue that we have been engaged and deepening” ever since U.S. President Joe Biden and Chinese President Xi Jinping met in 2022 in Indonesia. She noted that it would be her third meeting with China’s vice premier.

Ms. Yellen recently accused China of flooding global markets with heavily subsidised green energy products, possibly undercutting the subsidies the U.S. has provided to its own renewable energy and EV sector with funds provided by the Democrats’ Inflation Reduction Act. She said she intends to repeat her concerns to Chinese officials that they’re flooding the global market with cheap solar panels and EVs that thwart the ability of other countries to develop those sectors.

“We need to have a level playing field,” Ms. Yellen told reporters. “We’re concerned about a massive investment in China in a set of industries that’s resulting in overcapacity.”

Ms. Yellen didn’t rule out taking additional steps to counter Chinese subsidies in the green energy sectors, adding, “It’s not just the United States but quite a few countries, including Mexico, Europe, Japan, that are feeling the pressure from massive investment, in these industries in China.”

The Treasury secretary’s travels come after Mr. Biden and Mr. Xi held their first call in five months on Tuesday, meant to demonstrate a return to regular leader-to-leader dialogue between the two powers. The leaders discussed Taiwan, artificial intelligence and security issues.

The call, described by the White House as “candid and constructive,” was the leaders’ first conversation since their November summit in California, which renewed ties between the two nations’ militaries and enhanced cooperation on stemming the flow of deadly fentanyl and its precursors from China.

Still, it appears to be difficult for the two countries to strike a balance between competition and antagonism.

For instance, Mr. Xi last week hosted American CEOs in Beijing to court them on investing in China. Meanwhile, Mr. Biden last August issued an executive order that instructed an inter-agency committee, chaired by Ms. Yellen, to closely monitor U.S. investment in China related to high-tech manufacturing.

Jude Blanchette, a China expert at the Center for Strategic & International Studies, said, “the Biden administration’s efforts over the last year to stabilize the relationship are clearly working, but the main friction points all remain unresolved and will likely challenge the relationship for the foreseeable future.”

“For the time being, a managed rivalry’ might be the best we can hope for, given the potentially catastrophic consequences of the relationship really going off the rails,” he said.

Ms. Yellen last week said China is flooding the market with green energy that “distorts global prices,” and plans to tell her counterparts that Beijing’s increased production of solar energy, electric vehicles and lithium-ion batteries poses risks to productivity and growth to the global economy.

China began to broaden its presence in the global economy more than two decades ago, exporting cheap goods that appealed to U.S. consumers at the expense of factory jobs in many of those consumers’ hometowns. Research by the economists David Autor, David Dorn and Gordon Hanson into what’s known as the “China Shock” led to the steady demise of many factory towns, and in some cases led to greater political discontent.

Still, some experts see a benefit in an economic showdown to produce green products.

Shang-Jin Wei, a professor of Chinese business at Columbia University, says that a subsidy war could ultimately help consumers in both countries buy more climate-friendly products, which is an aim of the Biden administration.

“In contrast, a U.S. tariff on EV imports could raise the price of EVs in the U.S. and is therefore counterproductive for the purpose of inducing a green transition.”

Ms. Yellen’s trip will run from April 4 to 9. It’s intended as a follow-up to Ms. Yellen’s travel to China last July, which resulted in the launch of a pair of economic working groups between the two nations’ finance departments to ease tensions and deepen ties.

But this visit falls in an election year, where tough talk on China has increased by Democrats and Republicans — who criticize Chinese ownership of popular social media app TikTok, the nation’s censorship and human rights record and hold a deep mistrust over recent acts of espionage such as hacking and the use of a spy balloon.

Scheherazade S. Rehman, a professor of International Business and Finance and International Affairs at George Washington University, said while “it’s an election year, so all the rhetoric is going to be sharper, the U.S and China are in a symbiotic trading relationship and ultimately need each other.”

China is one of the United States’ biggest trading partners, and economic competition between the two nations has increased in recent years. Yellen stressed Wednesday that the United States has no interest in decoupling from China.

China’s support of Russia as it continues its invasion of neighboring Ukraine is another issue that will come up during the meetings. As the U.S. and its allies sanction Russian officials and entire sectors of the Russian economy, like banking, oil production and manufacturing, trade between China and Russia has increased.

File picture of RBI Governor Shaktikanta Das, who said that India accounts for 40% of all digital payments in the world
| Photo Credit: ANI

Reserve Bank of India Governor Shaktikanta Das said on Monday that digital transactions in India have grown 90-fold in 12 years.

Mr. Das was speaking at the RBI headquarters in Mumbai during the central bank’s Digital Payments Awareness Week programme.

The RBI chief went on to note that India accounts for 40% of all digital payments in the world, and that UPI transactions now account for 80% of all digital payments in India.

“In 2012-13, there were 162 crore digital payments. This number has grown to 14,726 crore in 2023-24 till February,” he sid.

National Payments Corporation of India’s (NPCI) Unified Payment Interface (UPI) being formally launched at the Eiffel Tower on February 2, 2024
| Photo Credit: PTI

India on Friday formally launched UPI at the iconic Eiffel Tower here, terming it as taking Prime Minister Narendra Modi’s vision of taking UPI global.

“UPI formally launched at the iconic Eiffel Tower at the huge Republic Day Reception. Implementing PM @narendramodi’s announcement and the vision of taking UPI global,” the official X handle of India’s Embassy in France posted along with the photos of the event.

Replying to this, Mr. Modi said, “Great to see this – it marks a significant step towards taking UPI global. This is a wonderful example of encouraging digital payments and fostering stronger ties.”

Unified Payments Interface (UPI), launched in 2016, is a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing and merchant payments into one hood, according to NPCI.

Incidentally, at the invitation of Prime Minister Modi, Emmanuel Macron, President of France, was the Chief Guest for the 75th Republic Day celebrations in New Delhi on January 26.

“The new energy in India-France ties from a historic year in the Strategic Partnership visible at 75th Republic Day reception,” the official handle X posted and thanked the Minister Delegate in charge of Democratic Renewal, Government Spokesperson Prisca Thevenot for honouring the occasion.

It also thanked the members of Parliament, business leaders, scholars, friends of India and Indians in France.

The NPCI said in a statement that its arm NPCI International Payments (NIPL) has tied up with French e-commerce and proximity payments Lyra, which will help ensure that the UPI payment mechanism is accepted in the European country, starting with the Eiffel Tower.

At present, Indian tourists rank as the second largest group of international visitors to the Eiffel Tower, it said. Indian tourists can simply scan a QR code generated on the merchant’s website and initiate a payment.

Eiffel Tower is the first merchant to offer UPI payments in France, and the service will soon be extended to other merchants in the tourism and retail space across France and Europe.

U.S. Ambassador to India Eric Garcetti during the 20th Indo-US Economic Summit, in New Delhi on September 26, 2023
| Photo Credit: ANI

India and the US need to strive towards a more ambitious and frictionless bilateral trade relationship, U.S. Ambassador to India Eric Garcetti said in New Delhi on Tuesday.

Speaking at the 20th Indo-U.S. Economic Summit organised by the Indo-American Chamber of Commerce, Mr. Garcetti lauded the recently concluded G-20 Summit in New Delhi, saying India has demonstrated its global leadership through the “most successful” G-20 in the history of the organisation.

The theme of the 20th Indo-U.S. Economic Summit is ‘Sharing ideas and potential for a sustainable partnership between India and the U.S. for the next 25 years’.

“The goal that we should be setting for each other is how can we be more ambitious. Not just settle for another deal, not just settle for as we have done in the last few months bringing down the retaliatory tariffs and trade disputes between our countries. That’s not good enough.

“I think we need to close our eyes and dream of what this relationship can be like even more than we would imagine today. How can we create a frictionless relationship?” Mr. Garcetti said.

Noting that there is a need to do away with even the smallest of friction between the two countries in terms of trade, he called for a reduction of tariffs and the creation of a more predictable regulatory environment.

He also pitched for a robust agriculture trade between India and the U.S.

“This is a great agricultural country and so is the United States. We want India to be one of our top three markets in the world. Here, the productivity in dairy and other areas has levelled off,” Mr. Garcetti said. He congratulated India on the successful landing of Chandrayaan-3 on the southern pole of the Moon.

The Ambassador said that both countries are now looking at partnerships in the commercial space segment.

He stressed the importance of sharing technology and co-development of technologies in sectors like defence, in which India and the U.S. already have strong ties.

Representational image of crude oil barrels ready to be transported.
| Photo Credit: AP

The government has cut the windfall profit tax on crude oil produced in the country while the levy on exports of diesel and aviation turbine fuel (ATF) has been hiked, an official notification said.

The tax, levied in the form of special additional excise duty or SAED, on domestically produced crude oil was reduced to ₹6,700 per tonne from ₹7,100 a tonne.

SAED on the export of diesel was increased to ₹6 per litre from ₹5.50 a litre and on jet fuel or ATF to ₹4 per litre from ₹2, the notification said.

SAED on export of petrol will continue to be zero.

The new tax rates came into effect from Saturday, the order dated September 1, said.

India first imposed windfall profit taxes on July 1 last year, joining a growing number of nations that tax supernormal profits of energy companies. At that time, export duties of ₹6 per litre ($12 per barrel) each were levied on petrol and ATF and ₹13 a litre ($26 a barrel) on diesel.

A ₹23,250 per tonne ($40 per barrel) windfall profit tax on crude oil produced by companies such as Oil and Natural Gas Corporation (ONGC) was also levied.

The tax rates are reviewed every fortnight based on average oil prices in the previous two weeks.

A windfall tax is levied on domestic crude oil if rates of the global benchmark rise above $75 per barrel. Export of diesel, ATF and petrol attract the levy if product cracks (or margins) rise above $20 per barrel.

Product cracks or margins are the difference between crude oil (raw material) and finished petroleum products.

International crude oil prices averaged $86.43 per barrel in August, up from $80.37 in the preceding month and $74.93 a barrel in June.

The levy on domestic crude oil dropped to nil in the first half of April as international crude oil prices fell but was back in the second half in step with a rise in rates.

Levy on diesel became nil in April but the levy was brought back in August. Levy on ATF became nil in March and was brought back in second half of August.

The export tax on petrol was scrapped in the very first review.

Crude oil pumped out of the ground and from below the seabed is refined and converted into fuels like petrol, diesel and aviation turbine fuel (ATF).

Reliance Industries Ltd, which operates the world’s largest single-location oil refinery complex at Jamnagar in Gujarat, and Rosneft-backed Nayara Energy are primary exporters of fuel in the country.

File picture of workers loading LPG cylinders on to a truck.
| Photo Credit: Reuters

Public sector Oil Marketing Companies (OMCs) have slashed the price of 19 kg commercial LPG gas cylinders by ₹158, according to the sources. The new prices will be effective from today. In Delhi, the retail price of the 19 kg commercial LPG cylinder will be ₹1,522. 

On August 29, the price of domestic LPG was reduced by ₹200 by the Centre, which Prime Minister Narendra Modi termed a “Raksha Bandhan gift” to the sisters of the country. Monthly revisions for both commercial and domestic LPG (liquefied petroleum gas) cylinders occur on the first day of each month, with the new rates becoming effective from September 1.

Earlier in August, the prices of commercial LPG cylinders were slashed by ₹99.75 by the OMCs. In July, the prices of commercial LPG gas cylinders were increased by ₹7 each.

Before this hike, there had been two consecutive price cuts for commercial LPG cylinders in May and June. While in May OMCs reduced the price of a commercial LPG cylinder by ₹172, in June it was reduced by ₹83.

In April, too, their prices were reduced by ₹91.50 per unit.

Petroleum and oil marketing companies had on March 1 this year hiked the prices of commercial LPG cylinders by ₹350.50 per unit and domestic LPG cylinders by ₹50 per unit.