Another monster trade deficit for India: Moody’s .

India’s trade deficit has widened to a “monstrous level” Moody’s Analytics said on Thursday.

According to data released today, India’s exports grew 10.4 per cent year on year to $25.4 billion, which was better than the previous two months and slightly above expectations. Imports surged too, by 20.1% YoY to $40.1 billion. In other words, India is importing more than it exports, leading to a trade imbalance.  .

“The January shortfall was a little wider than expected as imports surged ahead, easily outpacing export growth,” Moody’s Analytics says in a statement.

For the first time, exports have risen, reversing a declining trend from July 2011, while imports has continue to grow solidly. “This mirrors the Indian economy that is still growing at a decent clip, while the global economy struggles,” says Glenn Levine, Senior Economist at Moody’s Analytics, a division of Moody’s Investors services.

Oil imports, which account for the bulk of India’s imports, rose 26.8 per cent mainly on account of rising prices of oil and rupee devaluation against the US dollar. The rupee has risen 8.1 per cent year to date and currently trades at 49.13 per US$. Non-oil imports are up 17.6 per cent.

“This is an enormous imbalance that appears unlikely to turn around any time soon as India is still growing at 6 per cent while much of the world is near recession,” Levine says.

According to Moody’s, it is unclear how long these gaping shortfalls can persist as imports might soon be double the size of exports.

“This absurd outcome would inevitably require a correction, probably in the form of a sharply lower currency,” Levine reasons.

Moody’s also warned against a currency correction that could further worsen the trade deficit situation.

“It’s hard to say when it might come, or what the trigger could be,” Levine said.

One factor, Levine said, would be an interest rate cut by RBI that could trigger a sell-off. The other factor could be India’s political situation.

“The national government is in gridlock, unable to pass reform or indeed bills of any sort. This could snowball, triggering some sort of financial incident, and possibly a rupee sell-off,” he said.

Source : profit.ndtv.com