Trade deficit at 30-month low as gold, silver, oil imports fall.

NEW DELHI: India's trade deficit fell to its lowest level in 30 months as exports retained their double-digit growth rate and imports contracted due to a fall in the shipment of gold, silver and oil. The data comes as a huge relief to policy makers struggling to put a lid on the yawning current account deficit (CAD).

Data released by the commerce department on Wednesday showed that trade deficit had narrowed to $6.8 billion in September, the lowest since March, 2011, when it was estimated at $3.8 billion.

Since then, the monthly trade deficit has never been in single digit. Gold and silver imports plunged 82% to $800 million in September, compared to $4.6 billion a year ago, shutting out a major worry for policymakers. Surging gold imports were blamed for the widening of the CAD which triggered a sharp slide in the rupee against the US dollar.

Similarly, oil imports were down almost 6% at a little over $13 billion. As a result of the fall in two major items, India's imports declined by over 18% to $34 billion in September, 2013. The government has been brainstorming on the need to compress imports to trim the CAD. There has been talk of compressing non-essential imports but the move is still to gather pace.

"The government has taken steps to curtail imports of non-essential commodities, particularly precious stones. That is the singular reason for the decline in trade deficit," commerce secretary S R Rao told reporters. A lower trade deficit also augurs well for the rupee, which had depreciated by over 20% to a record low of 68.75 to a dollar in August end.

Boosting exports has been listed as one of the main pillars of the strategy to tackle the problem of a widening CAD. A slowdown in India's key markets such as the United States and the European Union had hurt exports, but the plan to diversify to other markets in Africa, Southeast Asia and Latin America has helped reverse the trend. Experts say the trend has to sustain in the months ahead to help macroeconomic managers breathe easy after a months of turbulence.

Exports rose for the third straight month as major items in India's basket—ranging from garments to textiles, pharmaceuticals to diamond jewellery—remained steady in the wake of higher price realization by Indian traders as well as improved demand in the US and Europe. Textile exports are estimated to have increased 15% in September, the Apparel Export Promotion Council said in a statement.

"I am confident that import-containment measures put in place for non-essential imports are playing out extremely well and we need to continue this so that our rupee becomes stronger," said Rao.

The widening trade deficit had resulted in the current account deficit hitting a record high of 4.8% of the GDP in 2012-13, prompting the government to announce a string of tough measures. "While there will be pressure from gold imports during the festival season, it is believed that if similar trends are maintained, the deficit can be lower than that of 2012-13 by $10-20 billion," CARE Ratings said in a statement. Last year, the trade deficit was estimated at $178 billion.

"India's current account deficit in the first quarter of 2013-14 was $21.8 billion (4.9% of GDP). An over $20 billion reduction in merchandise trade deficit in the second quarter as compared to the first suggests significant improvement in the current account deficit for the second quarter. Better-than-expected export growth, if sustained, creates a downside to our forecast for CAD at 3.9% of the GDP for 2013-14," added Crisil.

Source : timesofindia.indiatimes.com