India's trade deficit widened to $ 14 billion in August this year, rising sharply by over 94 per cent from $ 7.19 billion in the same month last year as imports outstripped exports. This is one of the highest levels of merchandise trade deficit seen during a month.
Exports of goods during August rose 27 per cent to $ 16 billion, from $ 12.61 billion in the same month last year. However, this rate of increase in overseas sales of Indian goods during August was lower than the 31.2 per cent rise seen in July.
Simultaneously, imports rose sharply by over 51 per cent at $ 29.94 billion mainly due to the increase in the value of crude oil imports, even as prices fell in August.
The central government is worried about the rising trade deficit. "It is a cause of concern for us. But the fundamentals of the economy are strong and we will be able to absorb it," said a commerce ministry official.
Analysts expect the pace of increase in the trade deficit to moderate in the coming months. "This level of trade deficit is definitely worrying. The increase has been mainly on account of the increasing oil import bill, especially in July and August. But going forward, crude oil prices are likely to remain lower and we will see the trade deficit narrow in the coming months," said Shubhada Rao, chief economist, YES Bank.
The increase in the pace of exports was aided by about 17 per cent depreciation in the rupee against the dollar between April and August this year. While this increased the rupee realisation of dollar earnings of exports, it also resulted in an inflated crude oil import bill.
Oil imports in August touched $ 11 billion, an increase of 77 per cent over the same month last year. In the first five months of 2008-09, the oil import bill surged nearly 60 per cent at $ 46 billion, up from $ 28.79 billion in the year-ago period.
However, non-oil imports, including capital goods and raw materials, registered nearly 40 per cent growth at $ 19 billion this August, compared with $ 13.6 billion in the same month last year.
"If we look at growth indicators, which includes advance tax collections and the non-oil import bill, it can be said that growth has not dissipated in the first half of this financial year. But the pain seen in July and August in terms of peaking crude oil prices and the global financial crisis is likely to manifest in the third quarter of 2008-09," added Rao.
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