India: Exports contract and trade deficit widens
June 17, 2013
In May, exports contracted 1.1% over the same month last year in USD terms, which contrasts the 1.7% increase tallied in April and marks, in fact, the first fall after four consecutive expansions. The 12-month sum of exports up to May dropped 3.3% over the same period last year, which represents an improvement compared to the 3.8% decline observed in the 12 months up to April.
Meanwhile, imports expanded 7.0% in May, which followed the scorching 11.0% increase observed in April. Both readings reflect strong growth in imports of gold, which is India's second largest imported commodity by value after oil and a key contributor to the country's trade deficit. Consequently, on 6 June, the government decided to hike its import duty on gold to 8% in order to curb demand for the precious metal. The hike follows a similar move in January, when the government decided to raise the import duty from 4% to 6%.
As a result of the deterioration in exports and the expansion in imports, the trade deficit widened to USD 20.1 billion (May 2012: USD 16.0 billion deficit), which drove the 12-month sum of the trade balance to a USD 205 billion shortfall. The reading exceeded the USD 201 billion shortfall registered in the same period up to April.
The government has set an export target of USD 325 billion for this fiscal year. In order to achieve this goal, in the Foreign Trade Policy, the government announced a package worth an estimated INR 30 billion (USD 550 million) to stimulate the country's exports.
FocusEconomics Consensus Forecast panellists anticipate exports to increase 11.8% in the FY 2013/14, to reach USD 330 billion. In FY14/15, the panel sees exports expanding 15.7%.
Author: Ricardo Aceves, Senior Economist