India’s trade deficit widens to five-month high of $10.5 billion.

​NEW DELHI: India's trade deficit widened to a five-month high of $10.5 billion as exports contracted for the second month running, declining 3.14 per cen in March, while the fall in imports slowed to 2.1 per cent because of higher inbound shipments of crude and precious metals. For the fiscal year ended March 2014, outbound shipments touched $312 billion, a 3.96 per cent growth over the last financial year but below the targeted $325 billion, according to data released by the ministry of commerce and industry.

The moderate growth in exports coupled with 8.11 per cent decline in imports due to curbs on gold imports and slower domestic growth helped reduce the trade deficit to $138.6 billion last fiscal year compared with $190.3 billion a year ago. The improvement in trade deficit is expected to help lower the current account deficit to about $40 billion, roughly 2per cent of GDP from a record high 4.7 per cent of GDP in fiscal year to March 2013. Experts expect the recovery in the external situation  to improve even as imports pick up pace going ahead.

"After a sharp compression in FY14 CAD, we expect a marginal widening of CAD in FY15 to US $ 46.7 bn or 2.3 per cent of GDP on account of domestic recovery and possible relaxation in gold restrictions post elections," according to a note prepared by Citi economist, Rohini Malkani.

The domestic industry has blamed the strengthening rupee to the reversal in exports growth. India's shipments were to pick up pace as the global economy gathered strength, but that has not been the case as exports have lost steam after a sharp recovery in the middle of last calendar. "Recent appreciation in rupee has led to erosion in the competitiveness of the Indian exporters. RBI should build forex reserves or else we will be in serious trouble facing a huge competition from China, Turkey, Indonesia, Brazil and other emerging markets," EEPC India chairman Anupam Shah said.

Readymade garment exports were up by 9.40per cent in March and 15.58per cent in 2013-14. Growth is pharmaceuticals exports remained low at 0.74per cent in March with some big Indian pharmaceuticals companies facing exports ban in the US. The end of the European Union's Generalised System of Preferences (GSP) in terms of lower import duties from January 1 also contributed to the slowdown in merchandise shipments. Commerce and industry minister, Anand Sharma, had announced fiscal incentives last  year to prop up falling exports.

India Ratings, an associate of global ratings agency Fitch, is hopeful of a recovery in exports. "The current trajectory of exports will improve as the incipient global recovery gathers pace in 2014," according to a statement from the ratings agency. Oil imports were grew by 17.7per cent in March to $15.7 billion but expanded by just 2.2per cent in the fiscal 2013-14.

Gold and silver imports touched an eight month high of $2.75 billion in March but registered a decline of 17.27per cent on a year on year basis. In 2013-14, gold and silver imports fell by a whopping 40.02per cent to $33.46 billion. "The chief driver behind the wider-than-expected trade deficit for March 2014 is a spike in oil imports, which may ease in the immediate term", said Aditi Nayar, senior economist, ICRA

Source : economictimes.indiatimes.com