Trade deficit at 7-month low on weak imports.

 NEW DELHI: India' s trade gap narrowed to a seven-month low in April on weaker imports of gold, silver and petroleum, offering some respite to policymakers struggling to contain the burgeoning current account deficit.

The commerce department reported on Thursday that trade deficit narrowed to $13.4 billion in April from $13.9 billion in the previous month.

Although merchandise exports rose a modest 3.2% from a year earlier to $24.5 billion, reflecting lacklustre demand from the West, import growth decelerated 3.8% to $37.9 billion mainly because of a sharp slide in imports of gold and silver. A slowdown in petroleum imports also helped keep the overall import growth under check.

"If the trade deficit stays at around $13 billion (a month) for the rest of the year, we are looking at a figure of $156 billion for the fiscal, which is much lower than last year's $185 billion," commerce secretary Rahul Khullar said.

While this would augur well for a country struggling to rein in its current account deficit that is likely to have crossed 4% of GDP last year, it may not be easy as export growth in the current fiscal is expected to be much lower than last year's 21%.

"Latest numbers from the US are not as encouraging as a month ago," Khullar said.

"The situation in Europe is disheartening. It is too early to say, but my guess is that with a 10-15% growth this year, I will be lucky. This is, of course, subject to review later." Indian exporters say the situation is likely to get tougher because the slowdown is creeping into emerging markets such as Latin America and Africa.

"The minuscule growth of about 3% in April, coming on the heel of a negative growth in the previous month shows that the impact of global contraction in trade is now being felt by India as well," said Rafeeque Ahmed, president, Federation of Indian Export Organisations. "The slowdown in new markets will be more obvious in the next few months."

Khullar said so far the depreciation in the rupee had not helped exports because it was being negated by an appreciation in the nominal exchange rate due to high inflation in the country.

However, now that the rupee depreciation at about 20% is much higher than the 9-10% inflation rate, exporters will get a competitive edge if it stays at the same level.

The trade deficit levels will also depend on how imports of machinery, steel, fertilisers, coal and other intermediates, which comprise about 50% of India's import bill, behave in the months to come.

Gold, silver and petroleum products comprise about 45% of the country's total imports, but import of intermediates, too, played an equally significant role in determining the country's import bill, the commerce secretary said.

The slowdown in import growth in April was primarily due to a 33% decrease in gold imports at $3.1 billion and 63.3% decline in pearls and precious stones at $1.2 billion.

"Gold and silver imports have declined because of price rise as well as disruption in April because of the excise (hike)," Khullar said.

Source : economictimes.indiatimes.com