India: Trade deficit shows signs of relief due to expanding exports
August 12, 2013
The trade balance reported a USD 12.3 billion deficit in July, which was notably less than the USD 17.5 billion shortfall reported in the same month last year. The reading came in under market expectations that had estimated a trade deficit of USD 13.5 billion.
Exports increased 11.6% in July over the same month last year in USD terms, boosted by the weakening of the rupee and the recent measures implemented by the government to incentivize exporters. The figure contrasts the 4.6% contraction observed in June and represents the fastest pace of expansion in 18 months. Meanwhile, imports contracted 6.2% in July (June: -0.4% year-on-year), the sharpest decline in 11 months. The reading continues to reflect lower imports of gold due to the actions took by the government to curb demand for the metal.
In fact, the government continues to move forward with its measures to curb demand for gold and, on 13 August, the administration lifted the import duty on gold and silver from 8% to 10%. The move is the third increase this year. The duty on silver was also increased to 10% from 6%. Moreover, Finance Minister Palaniappan Chidambaram announced in the parliament that the government is considering taking additional measures, with the aim of containing the current account deficit, reduce the volatility in the foreign exchange market and stabilize the rupee.
The government has set an export target of USD 325 billion for this fiscal year. In order to achieve this goal, the government has announced a package worth an estimated INR 30 billion (USD 550 million) to stimulate the country's exports.
FocusEconomics Consensus Forecast panellists expect exports to increase 11.1% in FY 2013/2014, reaching USD 327 billion. In FY2014/2015, the panel sees exports expanding 12.4%.
Author: Ricardo Aceves, Senior Economist