Trade deficit widens

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SummaryAfter declining for eight consecutive months, merchandise exports grew 0.8% to $25.6 in January 2013, but imports too during the first month of this year increased by 6.1% to $45.6 billion.

After declining for eight consecutive months, merchandise exports grew 0.8% to $25.6 in January 2013, but imports too during the first month of this year increased by 6.1% to $45.6 billion. As a result, the trade deficit widened further to almost $20 billion, a rise of 14% as compared to January 2012.

Cumulatively during April to January 2013, exports were $240 billion, down almost 5%, while imports at $470 billion in the same period resulted in the trade deficit widening to $167 billion this year as compared with $155 billion last year. The deteriorating trade balance has pushed up the current account deficit (CAD) to an all-time high of 5.4% of GDP in the quarter ended September last year and is expected to rise further. In fact, Reserve Bank of India Governor D Subbarao had reiterated his concern about financing the CAD with volatile capital flows, and projected the deficit to touch a record high in the current financial year.

A Citi Research note says while exports are more sensitive to global demand rather than the rupee, imports will remain high due to oil and gold. Citi expects the rupee to trade in the range of 53-56 against the dollar over the next 6-12 months and given the elevated levels of CAD, the note underlines that the rupee retracing back to 2011 levels is unlikely. Capital flows, though buoyant, have been barely sufficient to finance the CAD and this is likely to keep the currency under pressure.

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