Exports contract, February trade deficit narrows to $8.1 billion

 Indian exports fell for the first time in eight months in February although a sharp decline in imports led by a fall in gold imports helped narrow the trade deficit and ease the pressure on the external sector and the rupee.

Exports fell 3.7% to $25.6 billion in February from $26.6 billion in the year-ago period, dragged down by sectors such as petroleum, engineering and pharmaceuticals, and imports fell 17% to $33.8 billion from $40.7 billion, according to data released by the commerce ministry on Tuesday. This helped narrow the trade deficit by 42% to $8.1 billion.

A pick up in exports and curbs on gold imports helped India to rein in its current account deficit in the previous two quarters of 2013-14. A large trade deficit made the Indian economy vulnerable to external sector shocks and saw the Indian currency touching a record low of almost 69 per dollar in August.

The rupee has since stabilised to around 61-62 per dollar. On Tuesday the rupee closed at 60.95 against a dollar, having ended the previous day at 60.84, the highest since 6 August.

Citi India economists Rohini Malkani and Anurag Jha said in a note on Tuesday that the continued compression in the current account deficit, along with a pick-up in capital flows, is positive for the rupee though they do not expect the rupee to rally beyond 60 per dollar.

India’s current account deficit narrowed to 0.9% of gross domestic product in the quarter ended December, from 1.2% of GDP in the preceding quarter.

According to commerce ministry data, oil imports fell 3% to $13.7 billion in February, and non-oil imports fell 25% to $20.1 billion. The contraction in non-oil imports was led by a 70% decline in gold imports to $1.6 billion.

In the April-February period, while exports grew 4.8% to $282.7 billion, imports contracted 8.6% to $410.8 billion. Trade deficit in the first eleven months of this fiscal year was down 29% at $128 billion.

Commerce secretary Rajeev Kher said exports in the full year should be around $310 billion. “I will not be happy with $310 billion. We need to have better performance... We have not done as well as we should have,” he said.

He added that the commerce and the finance ministry are working towards a relaxation in gold import curbs.

However, Malkani and Jha pointed out that the model code of conduct may prevent the government from reducing import duty on gold in the next two months.

Finance minister P. Chidambaram had said the government will review its curbs on gold imports once the final current account deficit data for the full fiscal year is known.

The government is hoping to control the current account deficit to less than $40 billion this fiscal, or around 2% of GDP, mainly on the back of a sharp reduction in gold imports due to the high customs duty of 10%. In 2012-13, the current account deficit had touched a record 4.8% of GDP.

M. Rafeeque Ahmed, president, Federation of Indian Export Organisations, said the decline in exports in February was due to a number of reasons such as sluggish manufacturing, contraction in global demand and restriction on current and capital account in few countries in Latin America.

The decline in the global prices of commodities and metals also played a role as the finished products made out of these fetched lower prices compared with a year before, he said in a note. He added that exports in the current fiscal may be around $315 billion, below the target of $325 billion.

Source :  http://www.livemint.com/Politics/pFZaw3UsnlJ3FVADQ9odZM/Indias-February-trade-deficit-narrows-to-81-billion.html