Trade deficit narrows to two-year low: AnandRathi.

AnandRathi Retail Research has come out with its report on India economy - foreign trade. According to the research firm, the rupee would appreciate against the US dollar and see it trading in the 50-52 range in the next three to five months.

Record high exports in Mar'13, coupled with a fall in oil imports, led to the trade deficit narrowing to a two-year low. The inelastic nature of exports and imports in the early phase of large currency depreciation resulted in India's trade deficit widening sharply in foreign currency terms.

However, after some time, exports turned cheaper and imports, costlier, leading to the trade deficit narrowing. A sharp decline in international commodity prices, including crude and gold, augur well for the narrowing of India's trade deficit. We maintain our view of the rupee appreciating in the next three to five months.

Exports rebound. In Mar'13 India's exports grew 7 percent yoy, to USD 30.8bn, from USD 28.8bn in Mar'12. This is the largest India has ever exported in a single month. During FY13, however, exports declined 1.8 percent, to USD 300.6bn, vs USD 303.2bn during FY12.

Imports down. In Mar'13 imports slipped 2.9 percent to USD 41.2bn, vs USD 42.4bn in Mar'12. During FY13, imports increased slightly, by 0.4 percent, to USD 491.5bn, vs USD 488.5bn during FY12.

Oil imports contract. In Mar'13 India's oil imports dropped 16.6 percent, to USD 13.3bn, following 53 percent growth in May'11. During FY13, however, oil imports grew 9.2 percent, to USD 169.3bn, from USD 155.6bn in FY12.

Non-oil imports up. Non-oil imports in Mar'13 grew 5.4 percent, to USD 27.8bn, from USD 26.4bn in Mar'12. During the year (FY13), they declined 3.6 percent, to USD 322.2bn, from USD 332.8bn during FY12.

Trade deficit narrows to two-year low. Owing to a contraction in oil imports and a pick-up in exports, the trade deficit narrowed considerably, to USD 10.3bn in Mar'13, vs USD 13.5bn in Mar'12. For the year (FY13), however, it rose to USD 190.9bn, the highest ever in a year.

Foreign-trade assessment and outlook. Between Nov'09 and Oct'11, both exports and imports grew an average 35 percent yoy. For most of this period, the rupee was stable against the dollar. Only from Aug'11, it started cracking. Between Nov'11 and Jan'13, exports declined 1.3 percent while imports grew 9.5 percent.

During the early phase of large currency depreciation, both exports and imports are price inelastic, leading to an increase in the trade deficit in foreign currency terms. After some time, though, exports turn cheaper and imports, costlier, leading to the trade deficit narrowing.

In each of seven of the past eight months, exports have accelerated. This is in line with economic logic, and augurs well for the narrowing of the trade and current-account deficits in coming quarters.


Soruce : moneycontrol.com