India: Exports expand for the first time in nine months but trade deficit widens
February 13, 2013
In January, exports increased a meagre 0.8% over the same month last year in USD terms. The monthly increase contrasted the 1.9% decline observed in December and market analysts' expectations, who had anticipated exports to decline for a ninth consecutive month. Despite the increase, the 12 month-sum of exports up to January dropped 5.2% over the same period last year, exceeding the 4.4% contraction observed in December.
Meanwhile, imports increased 6.1% in January, which came in slightly below the 6.3% expansion observed in December. As imports outpaced exports, the trade deficit widened to USD 20.0 billion in January (December: USD 17.7 billion). The January reading pushed the 12-month moving sum of the trade balance to a USD 200 billion shortfall, which exceeded both deficits of USD 198 billion in December and the USD 168 billion registered in January 2012.
Nevertheless, Commerce Minister Anand Sharma recently stated that the trade gap should "close" soon, without providing specific details on the matter. The government expects exports to grow around 20% this fiscal year (ending March), but officials also reckon that this objective will be difficult to achieve given the weak demand from Europe.
As a result of lethargy observed in the external sector, on December, the government announced a plan to boost exports and extended loans programs for exporters by one year. Meanwhile, on 21 January, the government increased the import tax on gold from 4% to 6%, in order to curb demand for the precious metal, which is India's second-largest imported commodity by value - after crude oil - and a key contributor to the country's trade deficit.
Author: Ricardo Aceves, Senior Economist