Higher CAD, Slowing tax collections and strong Rabi sowing
This Week In Data #27
RBI released the BoP data for the September quarter. We knew that the September quarter had seen significant external account stress, but the data highlights just how severe it was. The current account deficit had widened to 4.4% of GDP, twice the level of the June quarter and the highest since 2013.
Not surprisingly, the capital flows fell well short of this. And thus, the BoP had a deficit of 3.7% of GDP. This was the highest since the GFC quarter (Dec-2008) and the second highest on record – since RBI started releasing quarterly data (from 1996). Given this, it is indeed a surprise that the rupee declined just 3% against the USD during the quarter. Credit must go to the deft FX management by the RBI.
India’s external debt declined by US$2bn during the September quarter to US$610bn. This is the second straight quarter of decline in external debt. The appreciation of the USD is a key driver of this decline. Almost half of India’s external debt is non-USD denominated with almost a third of it denominated in INR. This will include items like FPI investments in Government of India securities and corporate bonds. This point is often missed when analysts talk about India’s external debt. With a third of the debt being denominated in INR, the exchange rate risk on this debt is being borne by the lenders and not by Indians. Even otherwise, at just under 20%, external debt remains low relative to the GDP.
The central government’s gross tax collections declined 4% YoY in November. This is the second time in the last four months that tax collections have declined. However, despite this, YTD tax collections have grown by 15% YoY. And even if tax collections do not grow in the remaining 4 months of the year, full-year tax revenues would still be 0.9% of GDP higher than the budget estimates. All in all, the government has a significant buffer on tax revenues and thus despite the higher than budgeted expenditure, it should meet the fiscal deficit target it set out in the budget.
Lastly, the Rabi sowing continues to progress well. As of late December, overall Rabi acreage is 4% higher than last year with all key Rabi crops, including Pulses, seeing higher acreage. As we mentioned in last week’s newsletter a good Rabi harvest is important from an inflation perspective and current trends suggest we may be on track for a good harvest.
And that concludes this edition. The last one of 2022! We’ve done this newsletter for 27 weeks straight and during this period, the newsletter has evolved. We think for the better. And this newsletter will continue to evolve into the next year. If you have any thoughts, we are very eager to listen. Drop us a line by replying to this email.
Have a great new year folks. See you on the other side. So long...