India’s 2015 Monetary Policy and the Future of Its Economy
Indian trade in fiscal 2015-16
In India, the fiscal year begins in April and ends in March of the following year. Trade data for July, which was released on August 14, shows that in fiscal 2015-16, India’s exports stood at $89.8 billion, down 15% from a year ago. Meanwhile, India’s imports for the period stood at $134.9 billion, down 12% from the same period one year ago. The fall in imports has been primarily driven by a fall in crude oil prices, which has negatively influenced the stocks of companies like Occidental Petroleum Corporation (OXY), EOG Resources (EOG), and Anadarko Petroleum Corporation (APC) in the past three months.
Country-wise
In fiscal 2015, India’s exports to its top 25 trading partners accounted for 64% of its total exports. Meanwhile, these top 25 partners contributed to 80% of India’s total imports. That trend largely continued in April and May 2015.
What is significant is the contrast in country-wise share. China and the US are India’s top two trading partners, respectively. But as shown in the graph above, China’s share of India’s total exports has been falling.
Even if we consider exports to and imports from India’s top 25 trading partners, China’s share of India’s overall exports to these partners has been declining. In fiscal 2015, it stood at 6%, and in the first two months of fiscal 2016, it has fallen to 5.5%. In contrast, 16.7% of India’s imports in fiscal 2015 were Chinese. This figure has risen to 18.4% in the first two months of fiscal 2016.
In contrast, exports to the US, which had formed 21.3% of India’s exports to its top 25 trading partners in fiscal 2015, have increased to 24.1% in the first two months of fiscal 2016.
This widening trade gap with China, in addition to the fall in India’s total exports, will worsen further if the Indian rupee does not weaken. These imbalances could hurt India’s economy as well as India-focused ETFs like the WisdomTree India Earnings Fund (EPI) and the iShares MSCI India ETF ( INDA). One of the ways that India can soften the blow to its economy is by providing monetary policy support.
So far, the RBI (Reserve Bank of India) has been prudent about its monetary policy moves. There’s no reason to doubt that it will waver from this path. But while domestic inflation and unprecedented global developments may determine the level and timing of the RBI’s future monetary policy support, an out-of-turn announcement would not be a surprise.
You can visit our Macro ETF analysis page and keep yourself up to date on developments in India and other major economies.