The reduction in some of the windfall taxes on petro products may help resuscitate their exports slightly

in August and September after a 7% drop in July, but a broader export downturn is already underway
and will accelerate in coming months, Nomura said in a report on Wednesday. India’s goods trade
deficit widened to a record high of $31.01 billion in July, which Nomura economists pegged at $33.4
billion on a seasonally adjusted basis. The firm expects a negative basic balance of payments situation
for India in 2022-23, with the current account deficit (CAD) to hit 3.3% of GDP in 2022-23 from 1.2% last
year. The basic balance of payments factors in the CAD. “The sharp fall in exports in July appears to
have been aggravated by the export taxes on petroleum products, which were aimed at tackling
domestic shortage concerns, while also creating fiscal space on the margin,” Nomura noted. On
Wednesday, the government scrapped the export cess on ATF and reduced it for diesel to ₹5 per litre
from ₹11, while raising the levy on crude petroleum production by a little more than 4%. “The
reduction of windfall taxes may lead to a slight rebound in oil exports, but we expect the current
account deficit to remain on a deteriorating path in the next few quarters, due to steady domestic
demand, inelastic demand for select commodities and a global growth slowdown,” the firm’s
economists Sonal Varma and Aurodeep Nandi noted. “This highlights the trade-offs between controlling
both inflation and fiscal deficit and pressuring the external account,” they said, stressing that the
weakness in exports is, however, more broad-based. “We believe the export downturn has already
started and will accelerate in H2 2022. Our newly revised base case assumes a recession in the U.S., euro
area, U.K., Japan, South Korea, Australia and Canada, and growth slowdowns more broadly,” they said in
the report, adding that corrections in commodity prices may help contain import growth, but most likely
with a lag. “Robust domestic demand from post-pandemic recovery, elevated levels of crude oil prices
and higher demand for items like coal and chemicals should keep import demand elevated,” Nomura
said. Equity benchmarks staged a comeback during the fag-end of trade on Wednesday, with the Sensex
climbing over 214 points amid continuous foreign fund inflows and a largely positive trend in global
markets. Buying in IT counters and Reliance Industries added to the momentum. In a volatile session,
the 30-share BSE benchmark ended 214.17 points or 0.37% higher at 58,350.53. During the day, it hit a
high of 58,415.63 and a low of 57,788.78. The broader NSE Nifty went up by 42.70 points or 0.25% to
17,388.15. Among the Sensex constituents, Tech Mahindra, TCS, Infosys, Titan, Asian Paints, ICICI Bank,
Bharti Airtel and Reliance Industries were the major gainers. On the other hand, Maruti Suzuki, Sun
Pharma, Kotak Mahindra Bank, IndusInd Bank and Bajaj Finance were among the laggards. In Asia,
markets in Seoul, Tokyo and Hong Kong ended higher, while Shanghai settled lower. European stocks
were trading in the green during mid-session deals. The U.S. markets had ended lower on Tuesday.
Meanwhile, international oil benchmark Brent crude declined 0.91% to $99.63 per barrel.