Gold import fall helps narrow trade deficit

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New Delhi, Apr 12, 2014: A series of import curbs imposed by the government helped cut the trade deficit significantly in 2013-14 but two consecutive months of decline in exports meant that the growth target for the last financial year could not be achieved.

India's trade deficit narrowed to a little under $138 billion during the last financial year, compared to over $190 billion in the previous year on account of an 8% fall in imports, latest data released by the commerce department on Friday showed. Non-oil imports fell over 13% to $283 billion as gold imports dropped sharply on account of a series of restriction imposed by the government.

Gold and silver imports declined 40% to $33.5 billion in 2013-14, compared to close to $56 billion in the previous year. In March, import of precious metals was down by 17% to $2.75.

But, a poor export performance during February and March meant that the value of shipment out of the country rose 4% during the financial year as the gains of rupee depreciation seem to have vanished in recent months. Although the government was hopeful of meeting the target of $325 billion when the numbers for January were released, the poor show during the last two months was something that the commerce department was not expecting. Exports finished at $312.4 billion in 2013-14.

The other bad news in March was the trade deficit, which hit a five-month high of $10.5 billion, making it tougher for policymakers to immediately remove import restrictions on gold.

The government had to resort to unconventional measures to check rising import bill in the wake of record current account deficit, which threatened a ratings downgrade and was taking a toll on the Indian rupee. Along with restrictions, the government increased the import duty to 10%, resulting in a significant decline in shipments of the yellow metal, although there has been a spike in smuggling.

While a lower trade deficit will help keep the current account deficit under check the dark clouds haven't fully gone away. But, economists are drawing comfort from the improved numbers.

"Based on today's trade data, our tracking estimate for the first quarter current account balance is -$2.3 billion (a deficit of -0.5% of GDP) compared with -$4.1billion in Q4 2013 (-0.8%). This would take the full-year current account deficit to 1.8% of GDP in 2013-14 versus 4.7% in 2012-13. Looking ahead, as gold restrictions are relaxed further and growth starts to rise during the latter half of 2014-15, we expect the current account deficit to widen to around 2.3% of GDP in 2014-15, larger than in 2013-14, but still within the sustainable range," Nomura economists Sonal Varma and Aman Mohunta said in a note.

Courtesy: The Times of India