Trade: A short-lived reprieve in trade deficit?

CRISIL Research's analytical note based on trade data of April 2013.

After declining for three consecutive months, India's merchandise trade deficit widened sharply in April. Imports grew by nearly 11 per cent in April on a year-on-year basis, its fastest pace in last 12 months. In contrast, after four months of successive improvement, export growth in April decelerated to 1.7 per cent. Our analysis suggests that the seasonallyadjusted trade deficit however, did not rise much in April – it was only slightly higher compared to March and was lower than monthly trade deficit recorded between October 2012 to February 2013. For 2013-14, CRISIL Research continues to expect merchandise exports to recover from a decline of around 3 per cent last year and help contain trade deficit.

Imports in April grew at a much higher pace than average of 0.1 per cent growth in 2012-13 despite a recent correction in crude oil and gold prices. Crude oil imports increased by 3.9 per cent on a y-o-y basis despite a significant decline in the crude oil prices due to increased consumption demand. Non-oil imports rose by nearly 15 per cent on a y-o-y basis in April. While overall imports have remained robust in recent months, India's imports excluding oil and gold (seasonally adjusted) have stagnated. This reflects a weak domestic demand in terms of imports of capital and consumption goods. While a near stagnation in non-oil non-gold import is keeping import bill in check, it is a cause of worry since no early signs of an improvement in domestic demand are visible as yet.

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