NEW DELHI (Reuters) - Exports rose 12.4 percent in May over the previous year -- the sharpest rise in six months -- helped by a weaker rupee, government data showed on Wednesday.
Exports in May reached $28 billion, data released by the Ministry of Commerce and Industry showed.
However, the trade deficit stood at $11.23 billion, up from $10.09 billion in April.
COMMENTARY
SHUBHADA RAO, CHIEF ECONOMIST, YES BANK, MUMBAI:
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"Trade deficit is marginally higher than our expectation. Likely up by festival related gold demand and also oil demand. A key positive is export growth both in sequential and annualised terms.
"Going forward, we expect some widening of trade deficit on the back of gold demand picking up on expectation of a reduction in import duties. However, the extent of trade gap is unlikely to be worrisome as we expect exports to maintain good performance. We expect exports to grow by 7.3 percent and imports by 8 percent in 2014/15. Trade deficit is pegged at $164 billion.
"The forthcoming foreign trade policy, with emphasis on services exports as well as deepening of international economic relations by the new government, will have a strong positive impact on India's trade performance.
"Services have outpaced merchandise exports performance globally. As such, India being an inherent service excellence centre should stand to gain with sharper focus in foreign trade policy."
UPASNA BHARDWAJ, ECONOMIST, ING VYSYA BANK, MUMBAI:
"Seasonally, trade balance tends to worsen in the April-June quarter compared to the previous quarter. The pick up in imports was not only led by oil, but also by non-oil, non-gold imports, signalling stability in domestic demand. Also, export growth is encouraging. Curbs on gold imports may be removed or eased during the budget."
ANUBHUTI SAHAY, ECONOMIST, STANDARD CHARTERED BANK, MUMBAI:
"The May trade deficit widened to $11 billion and this was the third month in succession when trade deficit stayed in double digits as imports, especially oil, increased.
"Nevertheless, the trend is not worrying and we remain comfortable with our 2014/15 trade deficit forecast at $155 billion. The encouraging takeaway from today's data is the double-digit growth in exports. Exports either contracted or grew in low single digits during November-April 2014.
"With better economic activity especially in the U.S. and Europe, Indian exports are likely to stay on a reasonably better footing this time. Unless global growth disappoints, risks to trade deficit remains contained even if gold import restrictions are relaxed further."
RADHIKA RAO, ECONOMIST, DBS, SINGAPORE:
"Apart from base effects marginally boosting the May export growth on year terms, the trend remains supportive. But the bigger variable to watch is import growth as the sharp correction in non-oil imports last year was not by virtue of structural changes, but engineered by trade restrictions on gold imports and the weak domestic environment.
With a turnaround expected in the capex (capital expenditure) cycle, demand for imported capital and engineering goods are bound to rise, until the domestic manufacturing base can adjust. This might offset any anticipated rationalisation in fuel imports.
By extension, we see scope for the CAD (current account deficit) to re-widen to above 2.5 percent in FY15 from -1.7 percent last year. Nonetheless, this should not be a cause for concern as funding needs will be well-cushioned by flows attracted to the revival in growth on a rebound in domestic drivers.
A tail risk here is the direction of the U.S. rates, with an earlier-than expected push to hike rates likely to revive uncertainties for the emerging markets space, including India."
BACKGROUND
- India's current account deficit narrowed to $1.2 billion, or 0.2 percent of gross domestic product, in the January-March quarter, data released by the central bank showed last month, falling for the third straight quarter on the back of a sharp fall in gold imports.
- The current account deficit, which touched a record high of $87.8 billion in the 2012/13 fiscal year, eased to $32.4 billion in 2013/14 after a government crackdown on gold imports.
- The trade deficit in the January-March period fell to $30.7 billion from $45.6 billion a year earlier, while the capital and financial account surplus fell sharply to $2 billion versus $17.8 billion a year ago.
(Reporting by Mumbai treasury team; editing by Malini Menon)