India’s trade deficit lowest in 12 months

Source: Financial Express, May 10, 2012

New Delhi: Hit by slowdown in the western markets, India’s export growth dropped to 3.2 per cent in April, but a sharp deceleration in import expansion resulted in trade deficit narrowing to USD 13.2 billion, the lowest in a year.

The drop in the balance of trade (BoT) should reduce pressure on the rupee which has lost value by about 15 per cent against the US dollar since September, 2011.

Exports in April, the first month of the fiscal 2012-13 amounted to USD 24.5 billion, as per the provisional figures released by Commerce Secretary Rahul Khullar here today.

Imports for the month grew by 3.8 per cent to USD 37.9, also lowest in a year.

While the pace of export expansion dropped, the silver line is that there was annual accretion in the net value, as opposed to deceleration in March when the shipments contracted by 5.7 per cent.

For the fiscal as a whole, Khullar said, “we should be lucky to get a growth rate of 10-15 per cent…The situation in Europe is disheartening”.

He said the export data shows,”there are serious demand problem and constraints (in the western markets”, releasing the provisional data.

Though these are early days, Khullar said “If deceleration in imports continues, the BoT pressure will be lower than last year and if it will stay at USD 13 billion for the remainder period of the year, then we will end the year with USD 156-160 billion”.

In 2011-12, the country’s trade deficit jumped to USD 185 billion, highest ever in the history.

However, economists read slackening of imports as a sign of a slowdown.

The April export growth was led by engineering and pharmaceutical consignments which went up by 14.2 per cent and 33 per cent to USD 5.2 billion and USD 1.1 billion, respectively.

Export of chemicals grew by 11.4 per cent to USD 0.9 billion and electronics by 5.4 per cent to USD 0.6 billion.

However, shipments of gems and jewellery and readymade garments contracted by 25.7 per cent and 9.7 per cent to USD 2.6 billion and USD 1 billion respectively.

Khullar said that the target of USD 500 billion by 2013-14 looks “difficult” under the present global scenario.

“…demand condition is very uncertain, exchange rate risks are uncertain at this point of time. Some supply response and policy decisions (on coal, fertiliser and edible oil) will determine the balance of trade situation,” he added.

He said that if the Indian rupee depreciates, it will help in increasing exports and reduction in imports.

“Last year, India’s inflation (was around at) 9-10 per cent and the world inflation was at 2 per cent. It means steadily for the last couple of years, exchange rate is appreciating. So because of this we are loosing competitive edge,” the Secretary said.

Commenting on imports bill, Khullar said there is large contraction in gold and precious and semi-precious stones.

Petroleum imports grew by 7 per cent to USD 13.9 billion.

However, imports of gold and silver; pearls and precious stones contracted by 33 per cent and 63 per cent to USD 3.1 billion and USD 1.2 billion, respectively.

“My sense is that you will see lower demand for both pearls and precious stones and gold and silver in the coming months,” he said. However imports of coal, fertiliser and edible oil grew by 25.5 per cent, 62.2 per cent and 125 per cent to USD 1.5 billion, USD 0.45 billion and USD one billion, respectively.

Reacting to the trade data, FIEO President Rafeeqe Ahmed said the impact of global contraction in trade is now being felt by India.

“The slowdown in new markets will be more obvious in next few months” he said.

He said that sharp decline in exports of labour intensive sectors like readymade garments will have serious implications on employment and may lead to sharp reduction in additional job creation and even lay off.

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