India's trade deficit hits 5-year low at $4.8 bn

The Dollar Business Bureau

India’s trade deficit has come down to a five-year low touching $4.8 billion in April 2016 as per the data released by Ministry of Commerce and Industry on Friday. This is much lower than the deficit of $10.9 billion during the same month previous year.

In the month of April, exports have declined for 17th month in a row falling 6.74% down at $20.5 billion (Rs.1.36 lakh crore) from $22 billion (Rs.1.38 lakh crore) during same month last year. In the same way, imports have also come down in April, 2016 at $25.4 billion (Rs.1.68 lakh crore) which was 23.1% low when compared to $33 billion (Rs.2.07 lakh crore) in the same month previous year.

According to the ministry, the trend of falling exports is in tandem with other global economies. The growth in exports have also fallen in countries like USA (3.87%), European Union (0.04%), China (25.34%) and Japan (1.1%) during February 2016 over the same period last year. This was revealed in the data provided by World Trade Organization (WTO).

Aditi Nayar, Senior Economist from credit rating agency ICRA said that the decline in the trade deficit in April was unexpected. This is mostly led by a major fall in imports. The sharp 17.6% decline in non-oil, non-gold imports is startling, given the modest de-growth witnessed over the recent past. Barring November 2015, non-oil, non-gold imports recorded single-digit contraction from May 2015 to March 2016.

She said that the government has saved more than $1 billion in the import bill due to high domestic production, inventories and various initiatives such as the Minimum Import Price and safeguard duties. However, the $1.2 billion decline in imports is due to the y-o-y decline in the import of transport equipment and electronic goods in April 2016.

As gold imports are likely to start after the end of the jewellers' strike, the merchandise trade deficit may increase significantly in the next month from an average $5 billion recorded in the previous two months. The upsurge in exports of gems and jewellery to $7.1 billion in March-April 2016 from $6.4 billion in corresponding period last year is at odds with the fall in gold imports over the same period from $8.1 billion to $2.2 billion, she commented.

Speaking about the contraction in services exports for the fifth consecutive month, she said the y-o-y decline in the services trade surplus continue to pose concerns. Though the services trade surplus came down to a 14-quarter low in Q4 FY 2016, the current account balance is expected to register a small surplus in that quarter, benefitting from the decline in gold imports in March 2016 after the jewellers' strike.

Despite anticipated savings related to major imports, India’s current account deficit is expected to enhance modestly to $25 billion in the next financial year from $21 billion this fiscal due to the upsurge in gold imports and ongoing sluggishness in merchandise exports, she added.