India’s merchandise exports contracted in October—the first time this fiscal year—exerting pressure on the country’s trade deficit even as gold imports surged, forcing the government and the Reserve Bank of India (RBI) to consider further curbs on imports of the precious metal.
The government and the central bank are in talks to increase curbs on gold imports that almost quadrupled in October, Reuters reported on Monday, quoting RBI deputy governor S.S. Mundra.
“With the surge in gold imports which has been witnessed, it warranted a relook,” Mundra said. Last year, the government increased import duty on gold to 10% and made it mandatory for 20% of all gold imports to be held for exports of jewellery as part of its efforts to reduce the import of the yellow metal and consequently narrow the current account deficit that was spiralling. Some of these curbs were relaxed in May.
Although import growth was subdued, trade deficit widened to $13.3 billion in October from $10.6 billion a year ago, according to data released by the commerce ministry on Monday.
During the month, merchandise exports contracted 5% to $26 billion, mainly on account of sectors such as engineering goods, pharmaceuticals and cotton yarn exports. Imports grew 3.6% to $39 billion, with the growth moderation mainly on account of lower oil imports even as gold imports surged.
Gold imports rose 280% to $4.17 billion from $1.09 billion in the year-ago period. Gold imports have surged in the last two months, mainly on account of the festive season as well as the low prices globally.
Oil imports, however, came in 19% lower at $12 billion, compared with $15.2 billion a year ago as international oil prices fell.
The international crude oil price of the Indian basket has fallen to less than $80 per barrel, giving the government some respite in containing the trade deficit.
Non-oil, non-gold imports were up by 6% to $22.9 billion, mainly on account of iron and steel, electronic goods and vegetable oils.
In the April-October period, trade deficit was at $83.7 billion, as against $87.3 billion in the year-earlier period. A slowing global economy could remain a key risk factor for export growth, analysts say.
“Exports growth in the remainder of 2014-15 is likely to be muted, given sluggish growth in key export markets such as Europe and Japan as well as lower prices of commodity intensive exports,” said Aditi Nayar, senior economist at rating agency ICRA.
“As gold imports normalize post the festive season, we expect the trade deficit to ease materially from the levels seen in September-October 2014, benefiting from lower commodity prices,” Nayar said. “However, low growth of exports remains a key risk.”
Source: livemint.com
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