India’s trade deficit widens to $20.1 billion; exports fell by 1.1% in May’13

17 Jun 2013 Evaluate

Increasing pressure on the current account balance, India’s May trade deficit widened to $20.1 billion from $17.8 billion a month ago mainly on account of high imports of cheaper gold. Overall trade deficit for April-May, 2013-14 was estimated at $379.30 billion which was higher than the deficit of $309.72 billion during same period previous fiscal.

Exports for the month fell 1.1% to $24.51 billion than the level of $24.77 billion recorded in the same month previous fiscal, the first annual fall in five months. On the other hand, on cumulative basis, value of exports for the period April-May 2013-14 was $486.70 billion as against $485.68 billion, registering a growth of 0.21%.

Merchandise imports rose about 7% to $44.65 billion over the level of imports valued at $41.73 billion in May 2012. Cumulative value of imports for the period April-May, 2013-14 was $866.00 billion as against $795.40 billion registering a growth of 8.88%. Gold, silver imports were up 89.7% year-on-year at $8.9 billion. The imports of the two precious metals more than doubled in April-May period to $15.88 billion.

Oil imports for the reporting month was valued at $15.02 billion which was 3.05% higher than $14.57 billion in the corresponding period last year. Similarly, non-oil imports during the month were at $29.62 billion which was higher by 9.10% than $27.15 billion recorded in May, 2012.

Strong demand of gold has become a concern for Indian policymakers as the country is facing a record current account deficit (CAD), partly stoked by Indian consumers’ appetite for the yellow metal. The CAD widened to a record high of 6.7% in the third quarter of FY13. Recently, the rupee fell to its lifetime low level of over 58.90 against dollar because of the high CAD, which widened due to rising gold import and high crude oil prices. Further, persistent dollar demand from importers and banks also added to the fall in rupee value.

In May, India’s gold imports touched 162 tonnes, while in April, it was around 100-120 tonnes, higher than the average monthly import level of 70-80 tonnes. In a move to curb the gold import, the government recently hiked the import duty on gold to 8% from 6% earlier. Further, the RBI too had put restrictions on banks on gold imports.

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