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Business News/ Opinion / Online-views/  October trade deficit may shrink on lower crude petroleum prices
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October trade deficit may shrink on lower crude petroleum prices

October trade deficit may shrink on lower crude petroleum prices

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Lower crude oil prices have started to impact the country’s trade balance. The trade deficit for September fell to $10.6 billion (Rs51,940 crore today), compared with $13.94 billion in August and $10.8 billion in July. That’s primarily due to lower oil prices.

But non-oil imports rose at 36.2%, which, although lower than August’s 39.6% growth or July’s 38.7%, is still very strong.

Does the rise in non-oil imports indicate strong domestic demand? Indranil Pan, chief economist, Kotak Mahindra Bank Ltd, says a lot depends on how much of those imports are of gold. He also says that it’s only a matter of time before import growth slows, although the impact of a depreciating rupee on imports will be cushioned by lower commodity prices. Since current imports had been contracted several months earlier, the impact of slowing domestic demand will be felt with a lag.

Pan says a falling rupee will have little impact on expanding exports because the depreciation effect will be overshadowed by the impact of lower demand overseas. Also, many exporters had hedged their receivables earlier and cannot take advantage of the lower spot rupee.

And finally, the impact of a lower trade balance, too, is unlikely to be of much importance to the value of the rupee, since the currency is currently being driven by capital flows.

Nevertheless, Pan expects the deficit to come down further in October, because international crude oil prices fell far more in October than they did in September.

Write to us at marktomarket@livemint.com

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Published: 03 Nov 2008, 11:41 PM IST
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