India’s trade deficit jumped to USD 11.23 billion in May even though exports witnessed strongest growth in 6 months.
Trade deficit, the difference between earnings from exports and outflow on account of imports, rose to USD 11.23 billion in May, from USD 10.09 billion in the previous month. It was however lower than USD 19.37 billion in May 2013.
Exports grew by 12.4 per cent in May to USD 28 billion, whereas imports dipped by 11.4 per cent at USD 39.23 billion. The export figures in May are “encouraging”, Commerce Secretary Rajeev Kher told reporters here.
In April-May, first two months of the 2014-15 fiscal, exports grew by 8.87 per cent to USD 53.63 billion. Imports during the period dipped by 13.16 per cent to USD 74.95 billion.
Gold imports in May dipped by 72 per cent to USD 2.19 billion, as against USD 7.7 billion in May 2013.
ANUBHUTI SAHAY, ECONOMIST, STANDARD CHARTERED BANK, MUMBAI:
“The May trade deficit widened to $11 billion and this was the third month in succession when trade deficit stayed in double digits as imports, especially oil, increased.
“Nevertheless, the trend is not worrying and we remain comfortable with our 2014/15 trade deficit forecast at $155 billion. The encouraging takeaway from today’s data is the double-digit growth in exports. Exports either contracted or grew in low single digits during November-April 2014.
“With better economic activity especially in the U.S. and Europe, Indian exports are likely to stay on a reasonably better footing this time. Unless global growth disappoints, risks to trade deficit remains contained even if gold import restrictions are relaxed further.”
RADHIKA RAO, ECONOMIST, DBS, SINGAPORE:
“Apart from base effects marginally boosting the May export growth on year terms, the trend remains supportive. But the bigger variable to watch is import growth as the sharp correction in non-oil imports last year was not by virtue of structural changes, but engineered by trade restrictions on gold imports and the weak domestic environment.
With a turnaround expected in the capex (capital expenditure) cycle, demand for imported capital and engineering goods are bound to rise, until the domestic manufacturing base can adjust. This might offset any anticipated rationalisation in fuel imports.
By extension, we see scope for the CAD (current account deficit) to re-widen to above 2.5 percent in FY15 from -1.7 percent last year. Nonetheless, this should not be a cause for concern as funding needs will be well-cushioned by flows attracted to the revival in growth on a rebound in domestic drivers.
A tail risk here is the direction of the U.S. rates, with an earlier-than expected push to hike rates likely to revive uncertainties for the emerging markets space, including India.”
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