NEW DELHI: Exports grew for the ninth month running in May, but large gold imports ahead of the goods and services tax (GST) rollout from July 1spiked imports and pushed trade deficit to a 30-month high. Exports rose 8.3% year on year to $24 billion in May, data released by the commerce department showed, growing far slowly than imports that were up 33% from a year ago to $37.8 billion. May trade deficit at $13.84 billion was more than double of $6.2 billion trade deficit recorded in the same month last year.
The pace of growth of non-oil, non-gold imports firmed up to 19.8%, indicating strengthening of domestic demand. The growth in merchandise exports in May was broad based, led by petroleum products, engineering goods, gems and jewellery, and food items such as marine products and rice.
Imports of gold, silver and precious and semi-precious stones recorded a growth of 128% in May while gems and jewellery exports rose 6% in the month.
This was the ninth consecutive month of rise in exports. Twenty one out of 30 sectors showed an increase in exports.
Readymade garments saw 8% growth in May to $1.6 billion while engineering goods shipments added up to $6.2 billion, up 8.25% year on year. The rise was largely due to 236% higher gold imports at $4.9 billion. Other big contributor to imports was electronics goods that saw a 34% rise to $4.15 billion in May. Oil imports in May saw 29.5% spike to $7.7 billion because of higher prices. “Half of the upsurge in merchandise imports was led by precious metals and stones, which is likely to be on account of restocking after the festive and marriage season, and prior to GST,” said Aditi Nayar, principal economist at ICRA.
Under the GST regime, gold, silver, gold jewellery and processed diamonds would be taxed at 3%. With the existing 10% import duty, consumers will have to pay an effective duty of 13% on gold jewellery, up from 12.5% now. This 12.5% comprised 10% import duty, 1% value-added tax, 1% excise duty and 0.5% cess.
Ajay Sahai, director general at Federation of Indian Export Organisations, however, said such high imports of electronics and gold “is a cause of concern”. “On exports side, drugs and pharmaceuticals have declined and this needs to be studied,” he said.
The trade deficit in the first two months of FY2018 is pegged at $27.1 billion from $11.1 billion in the year-ago period. This could mean a sharp rise in current account deficit in first quarter from $ .3 billion in the first quarter of FY2017.
Source: economictimes.indiatimes.com