Trade deficit widens to 7-month high; exports down 1.1% in May

In India's trade deficit widened to a seven month high of $20.1 billion in May as gold imports continue to surge while exports declined by over a per cent, raising concerns about economic recovery.

The deficit widened to $20.1 billion from $17.8 billion in April.

The gap was $16.9 billion in May last year.

Gold imports jumped by 89.7 per cent to $8.4 billion while exports declined by 1.1 per cent to $24.51 billion.

The decline in shipments, according to Commerce Secretary S R Rao is mainly due to the steps taken by the government to restrict gold trading in special economic zones.

Gold exports from SEZs in May declined by $0.8 billion.

Besides problem in gold, weakness in the European markets has impacted exports growth.

The country's exports in May stood at $24.51 billion compared to $24.78 billion in May 2012.

Imports in May grew by 6.99 per cent to $44.65 billion.

"As far as trade deficit is concerned, it is very worrisome. . .It is largely contributed by heavy imports of gold and silver," Rao said.

Gold and silver imports, during the month under review, grew by 89 per cent to $8.39 billion.

During April-May period, it grew by 109 per cent to $15.88 billion.

However, exports during the first two month of the fiscal grew by 0.21 per cent to $48.67 billion.

Imports during the period was up by 8.88 per cent to $86.6 billion.

"Exports in May, there has been a negative growth which is largely contributed because government in the beginning of May has put restrictions on gold trading in SEZs," he said.

Oil and non-oil imports in May grew by 3 per cent and 9.1 per cent to $15 billion and $29.62 billion.

The secretary said hopefully from June, exports will bounce back as gold trading activities have started in SEZs.

"We have now made it mandatory that even in SEZ, gold units shall comply with the DGFT notification of minimum value addition of 3 per cent in gold jewellery and 5 per cent in gold and precious stone studded jewellery," Rao said.

Prior to May 1, the value addition norm were not applicable for SEZ exports so this has been now made applicable.

The biggest trade gap of $21 billion was recorded in October, 2012.

"In May, because we stopped gold trading in SEZs, that itself (gold exports) has declined by $0.8 billion. . .and if you look at export figure for May, our shortfall has been much less than $0.8 billion. . .Gold trading in SEZs is hitting India's exports," Rao said.

He said although the US market is improving, the European Union is still not out of the woods.

Both the markets account for about 30 per cent of India's exports. The secretary hoped that in June, trade deficit ‘should be contained and exports performance continue to perform well".

"What is important is to contain balance of trade which directly contributes to current account deficit.

"Even if nothing has been done to boost exports per se, measures are being taken to contain imports. “It is good for the economy,” Rao said.

The CAD, which is the difference between the inflow and outflow of foreign currency, touched a record high of 6.7 per cent in the October-December quarter on the back of rising oil and gold imports.

On the impact of rupee fall on exports, Director General of Foreign Trade Anup Pujari said it does not benefit much for exports because of high import content in the India's major shipments (like pharmaceuticals and gems and jewellery).

"We in the commerce ministry are looking for a stable exchange rate. . .rupee fluctuation is not good for business. . .we need a stable rupee," Pujari said.

The domestic currency has hit a life-time low of 58.98 on last Tuesday. With this the domestic currency has lost over 5.5 percent since May.

Reacting on the data, FIEO said the figures indicate that the global recovery is still weak.

"We may be seeing some decline in trade deficit due to softening of commodity prices and dip in gold import due to RBI restrictions and hike in (its) import duty," it said.

Rao said the main exporting items like textile and engineering are registering healthy growth.

"Textile exports continue to perform well. Engineering sector which was registering negative growth is also performing better," he said.

Apparel Exports Promotion Council Chairman A Sakthivel said garment sector continues to do well due to various factors.

"The better compliance practices adopted by factories and efforts made by AEPC by organising several fairs overseas have yielded results," Sakthivel said.

Oil imports during April-May 2013-14 grew by 3.47 per cent to $29.10 billion compared to $28.13 billion in the corresponding period last year.

Non-oil imports during the period was up by 11.84 per cent to $57.49 billion.

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