India: Trade deficit shrinks in December
January 15, 2015
More recent data related to India’s external sector showed that the trade deficit totaled USD 9.4 billion in December, which was above the USD 10.2 billion shortfall observed in the same month of the previous year. December’s result represents the lowest deficit in 10 months. In the 12 months up to December, the trade deficit recorded USD 138.5 billion, which narrowed slightly from the USD 139.3 billion shortfall recorded in the 12 months up to November.
The narrowing in the trade deficit showed that imports contracted 4.8% annually in December, which contrasted the 26.8% expansion registered in November. The reading, which marked a seven-month low, was the result of a fall in imports’ value on the back of the sharp decline in oil prices. Accordingly, oil imports totaled USD 9.94 billion, which represented a 28.6% decrease compared to the same month of the previous year. Conversely, gold imports—India’s second commodity import after oil—rose 7.4% annually in December. The increase reflects higher demand due to the Diwali festival as well as the government’s recent decision to relax restrictions on gold imports.
Meanwhile, exports contracted 3.8% year-on-year in December (November: +7.3% year-on-year), mainly due to weaker demand from the United States and China. Against this backdrop, the Federation of Indian Exports Organizations stated that it will be difficult to achieve the USD 340 billion export target for the 2014/2015 fiscal year (ending March 2015).
Author: Ricardo Aceves, Senior Economist