Trade deficit at 10-month low as oil imports shrink

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New Delhi | Published: January 16, 2015 2:18:43 AM

Reducing concerns on the current account deficit (CAD) front, trade deficit in December was lowest...

Reducing concerns on the current account deficit (CAD) front, trade deficit in December was lowest in ten months as imports contracted 4.8% year-on-year, thanks to a major fall in oil imports and demand for gold.

Meanwhile, exports during the month shrunk by nearly 4% after 17 of the 30 broad sectors registered negative growth owing to weak global demand.

The trade deficit in December was $9.43 billion, the lowest since February 2014 when it was $8.1 billion. Oil imports in the month contracted by 28.6% to $9.9 billion due to the tumbling global oil prices (which saw a fall of over 60% since last June). Oil contributes to about a third of the country’s total import bill.

In a reflection of the concerns of buyers regarding the price volatility of the yellow metal, gold imports also fell by 76% from November to $1.34 billion (which was a 7.4% year-on-year growth). An over six-fold jump in gold imports in November had resulted in overall imports recording a 27% year-on-year jump in November and in turn widening the country’s trade deficit to an 18-month high of $16.86 billion in the month, sparking fresh worries over CAD. Gold imports in November was $5.61 billion as against $835.83 million in the same month last year.

However, one of the main reasons behind the RBI cutting its repo rate in a surprise move on Thursday was the fall in oil prices and consequently a lesser than expected CAD. According to Bank of America Merrill Lynch analysts forecast, Brent oil prices is expected to fall to $31 per barrel by the first quarter end.

India’s CAD had widened to $10.1 billion or 2.1% of GDP in the second quarter of the current fiscal from $5.2 billion or 1.2% of GDP in the year-ago-period, due in part to an incipient domestic investment cycle that boosted imports and a muted export growth. In the April-June quarter of this fiscal, the CAD had stood at $7.8 billion or 1.7% of GDP.

Non oil-imports including capital goods in December, meanwhile, posted a 9.9% growth to $24.9 billion. Imports of machinery, electrical and non-electrical goods, were up by 17.91% to $2.6 billion, indicating the possibility of greater industrial output to cater to the rising demand.
Overall exports in December shrunk by 3.77% to $25.39 billion, while imports contracted by 4.8% to $34.83 billion. Engineering goods exports were up 20.5% to $6.9 billion, while petroleum products exports shrunk by 21% to $3.8 billion. Cumulative value of exports for the period April-December 2014-15 was $241.15 billion, a growth of 4.02%, while imports for the period was $351.2 billion, a growth of 3.63%.

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