Indians' love for gold drives up trade deficit balloons in Sept

Export growth below 3% for a 2nd month, while imports surge 26%, driven by surge in those of gold and ores

The country’s merchandise exports stuck to a sub-three per cent growth rate for a second month, expanding 2.7 per cent over a year earlier to $28.9 billion in September, against $28.1 billion the same month last year. The rise was 2.35 per cent in August.

Imports, however, surged almost 26 per cent, to a 16-month high of $43.15 billion in September against $34.3 billion in the same month last year, official data showed on Tuesday. Imports had risen only 2.1 per cent in August.

This catapulted the trade deficit to a 16-month high of $14.25 billion in September, more than double the $6.1 billion in the same month last year. (DEFICIT DOUBLES)

The government said imports had so increased mainly due to “unusual” growth of 449.7 per cent in inflow of gold and a 105.6 per cent rise in metalliferous ores & other minerals over the same period last year.

Gold imports rose to $3.75 billion in September over $682 million in the same month last year. On whether this would dilute the demand of those asking for withdrawal of the curbs on gold imports, Ajay Sahai, director-general of the Federation of Indian Export Organisations (FIEO), said: “This would make the government cautious (in whether to do so).”

Aditi Nayar of ICRA said prices of gold fell in September, which is why the import spiked. “Also, gold imports were extremely low in September 2013. So, there is a base effect. Additionally, while restrictions on gold import are still there, more and more star trading houses have been allowed to import gold.”

Arun Singh of Dun & Bradstreet said the news was disturbing. “However, we need to study the trend and should wait for the data for some more months. The main issue is we have artificially managed gold imports and not arrested its demand. This has mainly got to do with the festive season and low base effect.”

Import of crude oil rose 9.7 per cent to $14.5 billion in September against $13.2 billion a year before, despite softening global petroleum prices. “OMCs (oil marketing companies) were importing more due to fall in prices,” Nayar said.

Taking crude oil and gold out of the import basket, inbound shipments rose 22.3 per cent to $24.9 billion against $20.4 billion a year before. This is high and augurs well for an industrial recovery in the months to come. Industrial growth stood at this financial year's bottom at 0.4 per cent in August.

In fact, the rise in import of metalliferous ores and mineral ores also point to an industrial revival, said Sahai. These imports rose to $817.8 million in September from $397.9 million a year before.

On export, those of engineering goods again overtook refinery products in September. The former rose 20.2 per cent to $6.5 billion in September against $5.4 billion a year before. On the other hand, depressed global crude oil prices resulted in export contraction of refinery products by 13.3 per cent, at $6 billion in September against $6.9 billion in September 2013.