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Higher oil imports, export slowdown widen trade deficit

Higher oil imports, export slowdown widen trade deficit

New Delhi: India’s trade deficit, the excess of imports over exports, has widened to $20.6 billion (Rs89,198 crore) in the first two months of the fiscal year that began on 1 April, almost equalling the shortfall in the first three months of the last financial year, largely due to a 50.8% jump in oil imports and a sharp slowdown in export growth in May.

The declining growth in exports, despite a nominal fall of 4.77% in the value of the rupee against the dollar in May, comes after a 31.5% increase in April.


Experts say that while the increase in oil imports—which led to a 27.1% increase in imports in May—is fuelled by spiralling crude oil prices, the fall in export growth can be explained by the movement in the real exchange rate.

“Although the rupee has depreciated against the dollar in nominal terms, given the domestic inflation, the rupee has appreciated in real terms," said Rajat Kathuria, professor of economics at the International Institute of Management in New Delhi. “This implies that Indian exports have become dearer and hence the deceleration. The global slowdown is also a factor."

The World Trade Organization, or WTO, says global trade growth is expected to slow to 4.5% in 2008 from 8.5% in 2006 and 5.5% in 2007./Content/Videos/2008-07-02/udit on Trade_MINT_TV.flva7f4d4d8-4785-11dd-9f8d-000b5dabf613.flv

India’s exports rose to $13.7 billion in May, up 12.9% compared with a year ago in dollar terms and 16.6% in rupee terms, latest commerce department data show. Imports in May were worth $24.5 billion, an increase of 27.1% in dollar terms and a 31.3% rise in rupee terms over the same period last year. Oil imports in the month rose to $8.4 billion, up 50% from May last year, which was, however, an exceptional month because oil imports had actually fallen then, compared with May 2006.

The trade deficit for April and May is estimated to be $20.6 billion, up 48.2% over the same period last year. In fact, the deficit stood at $20.7 billion for the April-June quarter of 2007-08.

Kathuria said that while a growing trade deficit and the consequent current account deficit are matters of concern in the medium-to-long term, no hasty conclusions can be drawn in the short term. The trade deficit, along with transfer payments such as remittances and software earnings, forms the current account deficit. The current account deficit for 2007-08 stood at $17.4 billion. “In terms of macroeconomics, this is an exceptional period for all countries and one should not read too much into a quarter’s figures," Kathuria added.

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