Trade Deficit Narrows To $10.9 Billion As Exports Surge

NEW DELHI: India's trade deficit narrowed to a five-month low in August, as merchandise exports clocked double digit growth for the second consecutive month and imports declined, offering a glimmer of hope for the battered rupee.



The narrowing of the trade deficit sparked further appreciation of the rupee, and stock indices built on already strong gains before the data was released on Tuesday.



Exports grew by 13% in August from a year ago while imports fell 0.68%, yielding a trade deficit of $10.9 billon, down marginally from $12.2 billion in July and $14.1 billion in August last year, data released by the ministry of commerce and industry showed.



Trade deficit narrows to $10.9 billion as exports surge



"Exports are on a firm positive terrain now and I remain optimistic about them remaining positive", commerce and industry minister Anand Sharma said. "Our imports are also down and we are closing the big gap in our trade account."



Exports were at a five-month high in value terms at $26.1 billion against $25.8 billion in July. All sectors that have a significant share in exports showed positive growth, barring that of jewellery. Gold imports declined by 70% to $0.65 billion in August compared with $2.2 billion a month ago.



"Gold imports are coming down, but it will not impact the jewellery sector," Sharma said. The moderation in trade deficit will help lower the current account deficit, which touched a record 4.8% of GDP last year, triggering a massive depreciation of the rupee.



The Reserve Bank and the finance ministry have taken a series of measures to curtail gold imports, which will help narrow the current account deficit. Finance Minister P Chidambaram aims to reduce CAD to 3.7% of GDP, or $70 billion. "The continued comfort on trade balance bodes well for CAD, which is likely to see a significant correction in Q2FY14," said YES BankBSE -1.86 % chief economist Shubhada Rao.



Rao expects gold imports to be muted because of existing restrictions, but sees some pick up in demand due to the expected increase in farm output and festival season buying. Crude oil imports grew in value terms on account of high increase in global crude oil prices.



Oil imports rose to $15.09 billion in August, registering an 18% year-on-year growth, compared with a de-growth of 8.7% in the previous month. Sharma, however, felt the rupee depreciation did not have a significant role in the exports pick-up.



"Forty five percent of exports have imported contents. I don't think weak rupee has any impact on positive export results," he said. In the five months to August, exports were up 3.89% at $124.4billion. Trade deficit during the period declined to $73.36 billion compared with $74.67 billion in April-August 2012-13.



Agriculture exports was a big contributor to the overall high export growth, with rice exports rising 43.41% and marine products increasing by about 40%. To further curb imports, the government is looking at imposing duties on non-essentials imports.



Industry has sought cheaper credit to sustain the momentum and suggested that exports be brought under priority sector lending.

Source:- economictimes.indiatimes.com