Trade deficit falls below $10b, export growth tepid

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India’s trade deficit narrowed significantly in January, falling below $10 billion, raising hope it will help the government rein in the current account deficit.

But the performance remained unimpressive on the exports front, which grew in single digit. This made it tough to achieve the modest $325 billion merchandise export target for this financial year.

Releasing the monthly trade data, new commerce secretary Rajiv Kher on Tuesday said the January trade deficit fell to $9.9 billion, half of $18.97 billion in the same month a year ago. In December, the deficit stood $10.14 billion.

The trade deficit in the first 10 months of the financial year stood at a low $119.95 billion compared with $167.79 billion during April-January 2012-13.

The significant contraction in trade deficit was attributed to a 77 per cent decline in gold and silver imports, which stood at $1.72 billion in January against $7.49 billion in the same month previous year.

During the first 10 months of the financial year, gold and silver imports totalled $29 billion against $46.7 billion in 2012-13, marking a 38 per cent negative growth.

Merchandise exports grew 3.79 per cent year-on-year to $26.75 billion, compared with 3.5 per cent annual growth in December and 5.9 per cent growth in November. Before that, exports grew in double digits for four consecutive months. Exports stood at $257.1 billion in the first 10 months of the financial year, a growth of 5.71 per cent year on year.

Though difficult, India may still achieve the export target of $325 billion for the financial year, Kher told reporters. “But it will be a tough call,” he said.

Engineering exports grew 37 per cent in January and 10 per cent overall, while rice exports rose 29 per cent. But two other important exports sectors, gems and jewellery and petroleum products, have not done well, director general of foreign trade A Pujari said.

The decline in gems & jewellery exports was more due to the global slowdown than restrictions on gold imports, as the sector continued to get all the concessions for imports made for export purposes, Pujari said.

Imports fell 18.07 per cent year-on-year to $36.57 billion in January. During April-December, total imports amounted to $377.04 billion, registering a negative growth of 7.8 per cent year-on-year.

Senior Icra economist Aditi Nayar said the month-on-month uptick in non-oil merchandise imports in January might persist through the quarter. Moreover, capacity constraints in key exporting sectors would likely prevent a substantial improvement in the growth of non-oil merchandise exports in the immediate term.

“Nevertheless, the trade deficit remained below $11 billion for six consecutive months, considerably easing the pressure on current account deficit, which is likely to fall to 2.5 per cent of GDP in 2013-14,” she said. This means CAD could be less than $50 billion in this financial year.

FICCI president Sidharth Birla said, “It is good to see a contraction in trade deficit for the seventh consecutive month. Nearly 48 per cent reduction in trade deficit for the month implies close to 28 per cent drop in our cumulative merchandise trade gap in the first 11 months of the financial year.” M Rafeeque Ahmed, president of the Federation of Indian Export Organisations (FIEO), said the continued modest growth in exports since October 2013 was “worrisome”.

“The 3.4 per cent exports growth in December 2013 and 3.79 per cent growth in January indicated that Indian exporters needed immediate attention to bring exports back on track and we need to take immediate measures to boost exports,” he said.

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