Home / Politics / Policy /  Trade deficit at 5-month low despite oil pressures

New Delhi: India’s trade deficit narrowed to a five-month low at $13.98 billion in September despite higher oil prices, even as merchandise exports entered negative territory after a gap of six months.

Data released by the commerce ministry on Monday showed that exports contracted 2.15% in September while imports grew 10.45% in dollar terms. In rupee terms, however, exports and imports expanded at 9.65% and 23.78%, respectively, mostly because of a sharp depreciation in the rupee.

Commerce secretary Anup Wadhawan said the dip in merchandise exports in dollar terms is due to a higher base in September last year when exports grew at an “abnormally high" 26% due to imminent cuts in pre-goods and service tax (GST) duty drawback rates. “This is a temporary phenomenon. Exporters continue to be resurgent with their realised incomes having gone up by almost 10%. October figures promise to be as per the ongoing six-month trend in dollar terms," he said.

In the first half (April-September) of the fiscal year, exports and imports grew at 12.54% and 16.16% respectively in dollar terms. Non-petroleum and non-gems and jewellery exports growth in April-September period was 10.32%. “Thus, the exports growth is robust and not confined to petroleum products alone," Wadhawan said.

The decline in the merchandise trade deficit is because of seasonal factors and is, therefore, likely to offer only temporary relief, said Aditi Nayar, principal economist at Icra Ltd. “The sharper depreciation of the rupee relative to some emerging market peers is likely to positively impact exports in certain sectors, including apparel, in H2 FY2019. Despite this, as well as the measures unveiled so far by the government to curtail non-essential imports, we will not be surprised if the merchandise trade deficit rebounds above $17.5 billion in October," she said.

Commerce secretary Anup Wadhawan said the decline in merchandise exports is due to a higher base -

The government last month raised import duties on 19 non-essential items, including refrigerators, air conditioners, jewellery, diamonds and jet fuel, accounting for annual imports worth 86,000 crore, to arrest a widening current account deficit (CAD) and a weakening rupee. Last week, it increased customs duty on a host of items, including telecommunication equipment, from the existing 10% to 20%.

Wadhawan defended the measure, saying India has raised custom duties well within its permissible bound rates at the World Trade Organization and, hence, cannot be termed protectionist unlike some developed countries.

India’s CAD worsened to 2.4% of gross domestic product (GDP) in the first quarter of 2018-19 and economists expect it to worsen to 3% for the full year. With large-scale capital outflows, financing the deficit is also a challenge, though India’s forex reserves are more than adequate.

Icra estimates India’s CAD to triple to a substantial $19-21 billion in July-September quarter of 2018-19, or around 3% of GDP, from the modest $7 billion during the same period a year ago. WTO has downgraded growth in global merchandise trade to 3.9% in 2018 from the earlier estimate of 4.4% because of the escalating trade tensions between the US and China.

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