New Delhi: India’s merchandise exports rose in January, the first time in nine months, but its trade deficit continued to widen because of record imports.
Exports in January rose by 0.82% to $25.59 billion because of a recovery in engineering and gems and jewellery shipments. Imports during the month grew 6.12% to a record $45.6 billion because of rising oil imports leading to a trade deficit of $20 billion.
Contraction in engineering exports slowed from 4% cumulatively in the April-January period to 0.68% in January, while gems and jewellery exports shrank 0.62% against 4% contraction in the April-January period. During January, petroleum exports rose 6.63% while drugs and pharmaceutical shipments increased 7.8%.
S.R. Rao said he expects the growth momentum to continue. “I hope the additional incentives given to exporters in January will result in better traction for exports.”
In December, the commerce ministry widened and extended the 2% interest subsidy on bank loans for labour-intensive sectors to specific engineering industry sub-sectors such as iron and steel, and electrical transformers, till 31 March 2014 to boost exports.
Until now, the subsidy has been available to sectors such as handicrafts and handlooms, carpets, readymade garments, processed agriculture products, sports goods and toys apart from small-scale industries.
The World Trade Organization has projected global trade to expand 4.5% in 2013, while export demand from developing countries will rise only 3.3% during the year.
In the 10 months ended 31 January, exports contracted 4.86% to $239.7 billion, while imports remained flat at $406.8 billion. The trade deficit during the period expanded to $167.2 billion from $154.9 billion in the same period a year ago.
Rao said the rising trade deficit remains a cause of concern. “Because of a huge surge in imports of crude oil for captive power generation, oil imports have been surging, adding to the trade deficit,” he said.
On Monday, Reserve Bank of India governor D. Subbarao reiterated his concern about financing the current account deficit with volatile capital flows, and he projected the deficit to touch a record high for the year to 31 March.
Crisil Research in an advisory said it expects merchandise exports to recover somewhat going forward because of an improved global outlook in 2013. “Thus, Crisil Research does not expect the trade/current account deficit as a percentage of GDP to widen further in 2013-14,” it said.
Citigroup India economist Rohini Malkani in a research note said with rising trade deficit, she expects current account deficit (CAD) in 2012-13 to rise to $87.9 billion, or 4.7% of GDP, from $76 billion, or 4% of GDP, expected earlier.
India’s current account deficit touched a record in September at 5.4% of gross domestic product (GDP) due to slowing exports and heavy oil and gold imports.
“Going forward for 2013-14, we expect the CAD to remain elevated at 4.3% of GDP due to unchanged trends in the trade deficit as exports are more sensitive to global demand rather than the rupee, while oil and gold are likely to keep imports high,” Malkani said.
Oil imports grew 6.91% to $15.9 billion in January while cumulatively, it grew 11.56% to $140.4 billion.
“The oil import bill is definitely a challenge, but for a growing economy, energy needs have to be met,” commerce and industry minister Anand Sharma said at an event in Mumbai.
Non-oil imports, which underlines the health of domestic economy, grew 5.71% in January to $29.7 billion while cumulative growth during the financial year (April-January) rose 5.17% to $280.8 billion.
Belying expectations of an industrial recovery, factory output contracted 0.6% in December. Together with the projection that the economic growth would drop to a 10-year low of 5% in the current fiscal year, the data contradicted the suggestion by the finance ministry that the economy is turning around.
Reuters contributed to this story.