Trade deficit in India falls to 30-month lowhttps://indianexpress.com/article/business/economy/trade-deficit-in-india-falls-to-30month-low/

Trade deficit in India falls to 30-month low

Trade deficit data to benefit Indian rupee as exports rise,imports fall.

Rising exports and declining imports in September narrowed the trade deficit in India to a 30-month low of USD 6.76 billion,which may help to Indian rupee to stabilise after excessive volatility in the past few months.

“Imports have shown a significant fall of 18.1 per cent and exports have shown a rise of 11.15 per cent in September.

The trade deficit is the lowest in the last 30 months,” Commerce Secretary S R Rao told reporters here.

While exports of textiles,pharmaceuticals and agriculture recorded decent growth,imports came down mainly on account of a decline in inward shipments of gold and oil.

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Imports of gold and silver plunged more than 80 per cent to USD 0.8 billion in September from USD 4.6 billion a year earlier. Oil imports declined by about 6 per cent to USD 13.19 billion.

“I am confident that import-containment measures put in place for non-essential imports are playing out extremely well and we need to continue this so that our rupee becomes stronger,” Rao added.

The rupee has depreciated by about 15 per cent since April.

The previous low for the trade deficit was USD 3.8 billion in March 2011. The gap was USD 10.9 billion in August.

Exports and imports in September stood at USD 27.68 billion and USD 34.4 billion,respectively.

During April-September this fiscal,exports grew by 5.14 per cent to USD 152.1 billion while imports declined by 1.8 per cent to USD 232.23 billion. The trade deficit for the six-month period was USD 80.1 billion.

The Secretary expressed confidence that the export target of USD 325 billion this fiscal would be achieved.

India’s trade deficit has been fuelled by high imports of gold and crude oil,contributing to the current account deficit,which has touched an all-time high of 4.8 per cent of GDP,or USD 88.2 billion,in 2012-13.

During the first half of this fiscal,gold and silver imports rose 8.7 per cent to USD 23.1 billion.

Rao said the import figure for September was the lowest in the past 30 months.

“The government has taken steps to curtail imports of non-essential commodities,particularly precious stones. That is the singular reason for decline in trade deficit,” he said.

Oil imports during April-September grew 3.58 per cent to USD 82.87 billion. Non-oil imports declined 4.55 per cent to USD 149.35 billion. In September,they dipped 24.19 per cent to USD 21.24 billion.

Rao said engineering,which contributes the most to the country’s exports,has started showing positive growth.

Engineering exports rose 15.2 per cent to USD 5.2 billion in September,while they declined 0.62 per cent to USD 28.07 billion in April-September.

Rao said with the Commerce Ministry having resolved the 80:20 issue,there should be a resurgence in the export of gems and jewellery.

The Reserve Bank of India introduced the 80:20 scheme in July,under which 20 per cent of gold purchased from overseas had to be exported to avail of further imports of the metal.

The restriction was aimed at curbing the widening current account deficit.

A government official last month said more than 20 per cent of the imported metal could be exported,clearing the confusion that had held up inbound shipments at customs.

Gems and jewellery exports in September declined 8.31 per cent to USD 3.79 billion. They were down 8.7 per cent to USD 20 billion during April-September.

Exports of tea,coffee,spices have come down.

Apparel Export Promotion Council Chairman A Sakthivel said exports may be good this year on the back of a good monsoon,positive manufacturing and a revival in the US economy.

Federation of Indian Export Organisations President Rafeeque Ahmed said exports will touch USD 350 billion this fiscal.

“The trade deficit is likely to come down to below USD 150 billion for this fiscal,which will help the government to keep the CAD within USD 70 billion,” he said.

INSTANT VIEW

India’s trade deficit narrowed to a two-and-half-year-low in September as merchandise exports posted a third straight month of annual growth,provisional government data showed on Wednesday,strengthening the outlook for the rupee currency.

COMMENTARY

RADHIKA RAO,ECONOMIST,DBS,SINGAPORE:

“Strong September trade numbers confirm expectations of a significant improvement in the current account position in 2Q FY13/14,likely more than halved from quarter before. Nascent pick-up in growth in the Western economies and boost to competitiveness from rupee depreciation were supportive of export receipts in September,while non-oil imports likely eased on lower gold purchases.

“The latter came under the hammer as volumes fell sharply on fresh restrictions and lack of clarity in the RBI trade regulations. This spells good news for the annual current account shortfall as well,but the outlook is partly clouded by upcoming seasonal rise in gold purchases and steady fuel/coal/iron ore purchases.”

RUPA REGE NITSURE,CHIEF ECONOMIST,BANK OF BARODA,MUMBAI:

“Lowest trade deficit in 30 months is strongly positive for the currency. Moreover,there has been a strong growth in the order of 11 to 12 percent of exports for the last three months which is supportive of growth and employment as most of the export sectors are labour intensive. This will give policymakers more comfort to focus on growth/inflation dynamics rather than currency stability.”

SHIVOM CHAKRAVARTY,ECONOMIST,HDFC BANK,NEW DELHI:

“I think there is slight base effect in exports,and they could grow 6-8 percent in second half. The underlying story of compression in trade deficit is very much intact.

“There will be some improvement in overall current account balance and that kind of scenario should translate into decreased pressure on INR. We expect INR to trade in 61.00-63.50/$1 over the next 3-4 months. The current account balance for the second quarter is likely to be 2.9-3.0 percent.

“I think what you saw in the second quarter was INR depreciation,and the problem came from capital flows,which fell quite sharply. In the second half,dual improvement in the capital account and the current account is expected and you’re already seeing INR stabilised.

“The key risk in the near term is the debt ceiling negotiation. And,the QE 3 taper,which has been postponed and not shelved.”

SAUGATA BHATTACHARYA,CHIEF ECONOMIST,AXIS BANK,MUMBAI:

“I think we will end up with a current account surplus or a very small current account deficit in the September quarter,but it is unlikely that we will get such low trade deficit numbers in the months going ahead as gold imports may pick up as we enter the festive and marriage season.

“But overall,we still may end up with an encouraging current account deficit number of $50-$60 billion for the full year which may give the RBI some comfort to cut the MSF (marginal standing facility) rate further. RBI may have been led by the better-than-expected trade deficit number to cut the MSF rate this week.”

SURESH KUMAR RAMANATHAN,REGIONAL HEAD OF RATES AND FX STRATEGY,CIMB,KUALA LUMPUR:

“Imports are off as expected largely given the weakness in the INR but exports are still holding up,so a ray of light ahead. The deficit is still large but the weakness in imports are squarely blamed on the INR volatility,so I don’t see this low import growth lasting for long.

“It could be that halting of gold shipments may be a factor that curbed the imports. I don’t expect any monetary policy easing yet on the Oct. 29 meeting,but we could see some form of signalling of easing in future meetings.

“The new RBI governor seems to have better acumen of financial markets which is why we have seen some stabilization in the INR,better signalling as well,which the markets like.”

UPASNA BHARDWAJ,ECONOMIST,ING VYSYA BANK,MUMBAI:

“The September data has come as a big positive surprise. However,we do not expect such a trend to continue given that seasonally the ongoing quarter tends to witness higher trade deficit.

“We expect a slight pickup in gold imports in H2 given the festive season.”

G. CHOKKALINGAM,MANAGING DIRECTOR AND CHIEF INVESTMENT OFFICER,CENTRUM WEALTH MANAGEMENT,MUMBAI:

“Import of gold crashed in September but that is not going to be a trend in future so take this trade data with a pinch of salt.

“These numbers just cannot be repeated. Next on watch would be corporate earnings which would be really bad. Also on watch would be April-September fiscal deficit numbers.

“Rating agency comments after seeing fiscal numbers of first half would be interesting too.”

BACKGROUND

*India’s current account deficit grew less than expected in the June quarter and is tipped to ease in coming months as a pick-up in exports and lower gold imports improve the trade balance. The deficit for the three months through June was $21.8 billion,or 4.9 percent of gross domestic product,driven by sluggish exports and high gold imports in April and May before the government hiked tariffs on the metal to a record 10 percent.

*Silver imports are on track to hit a record high this year as the wedding and festival season drives up buying of the precious metal instead of the traditional gold,made scarcer and dearer by official measures aimed at cutting the trade gap.

*Gold imports are expected to pick up sharply in October after purchases dropped to a fraction in the preceding two months. However,they would still be half of the usual monthly average.

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*India will have to rein in spending and cut subsidies to meet its fiscal deficit target,the country’s finance minister said on Monday,underlining that an austerity drive will not be blown off course by an election due next year.

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