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The fall in core imports and capital goods imports raises concerns on the trajectory of the domestic demand environment, JM Financial Institutional Securities said in a report.

Weakness in Non-Oil Non-Gold exports and imports raises concerns on the demand environment both domestically and externally, the report said.

Although India’s bilateral trade relations with Israel and Iran are marginal, escalation of war would add to the risk of resurgence in inflationary pressures, eventually widening the CAD beyond our expectation of 1.4 per cent of the GDP.

Fiscal measures have been proactive in the recent past, the results of which have been evident. Recent export restrictions on parboiled and broken rice to keep a tab on inflationary pressures domestically, reflected in the export figures of rice, which is at its lowest since Dec’20 ($586mn, -25 per cent YoY).

Similarly, Imports of pulses have been highest ($315mn, 89 per cent YoY) in last two years indicating that the supply side interventions are in place to address inflationary pressures in the crop (4.2 per cent MoM), the report said.

On the exports front, the decline was more prominent in petroleum products (-10.6 per cent YoY) while Non-oil category was flat at 0.5 per cent YoY. Within the major export commodities, gems and jewellery is the only category to report a decline (-2.9 per cent) on a 4 Yr CAGR, raising concerns on the discretionary demand in the global market, the report said.

“We expect crude prices to remain elevated in the near term as this spike is not demand-led but it is engineered through curtailing supply by oil producing countries. Our expectation of CAD at 1.4 per cent of GDP in FY24 would be at risk if monthly run rate of trade deficit breaches $20bn mark, currently at $ 19.3bn,” the report added.