Spurt in Exports Brings Down Trade Deficit.

India’s trade deficit narrowed to $7.98 billion in January from a year earlier as growth in merchandise exports remained robust and imports growth slackened.

Exports grew 32.4% to $20.6 billion in January, commerce ministry data showed. Imports gained 13% to $28.6 billion. The trade gap in January last year was $9.7 billion.

During April-January, exports stood at $184.6 billion and imports at $273.6 billion, leading to a trade deficit of $88.97 billion, which is about $1 billion less than its value a year ago.

The ministry expects exports to reach $225 billion in the year ending 31 March, exceeding its earlier target of $200 billion. Oil imports in January fell 7.8% to $7.85 billion from the year earlier. The imports during April-January rose 14% to $79.9 billion.

However, the latest spike in oil prices due to the unrest in Arab countries is expected to substantially raise India’s oil import bill.

The country’s annual oil import bill could rise 25-30% if crude oil remains between $100-120 per barrel, commerce secretary Rahul Khullar said in an interview last week.

Non-oil imports were valued at $20.7 billion, growing at a robust 23.8% in January.

The commerce ministry last week released a strategy paper to double merchandise exports to $450 billion by 2013-14 and keep the trade gap below 10% of the gross domestic product (GDP) to control India’s current account deficit.

Current account deficit as a percentage of GDP stood at 3.6% during the first half of the current fiscal year.

The Prime Minister’s Economic Advisory Council in its latest review of the economy said the deficit will remain at 3% as a percentage of GDP.

In fiscal 2010, India’s trade and current account deficits stood at 8.5% and 2.8%, respectively. “The large growth in the size of the trade deficit on merchandise account will result in a significant expansion of the current account deficit, in turn, leading to a reliance on foreign capital inflows to finance the deficit,” the ministry report said.

It added that a large widening of the trade deficit can potentially result in payment difficulties. “Such a situation is simply unacceptable because it may jeopardize the entire growth process,” it said.

To increase exports to $450 billion, the ministry has targeted a compounded average export growth rate of 26% a year.

The commerce ministry wants exporters to move up in the value chain in the US and European markets, while focusing on new markets in Asia, Africa and Latin America.

A strategy of products and market diversification has already started yielding results, said Ramu S. Deora, president, Federation of Indian Export Organisations.

“Even with this level of exports, the trade deficit is still likely to be over 9% of GDP, around the same as at present, which may be regarded as just about manageable,” the strategy paper said. The report also calls for reducing the dependence on imports by giving incentives to local production in farm, fertilizer and petroleum products, which will help manage the trade deficit better.

Source : livemint.com