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The country’s trade deficit neared an unprecedented level of a little over $20 billion in May, as merchandise exports contracted 1.1 per cent to $24.5 bn year-on-year and imports rose almost seven per cent to $44.65 bn, official data showed today.
If the trend continues in the coming months, this might have serious ramifications for the current account deficit (CAD), analysts warned.
After rising for four months in a row, exports fell from $24.8 bn in May 2012 as the commerce department’s efforts to curb gold trading in Special Economic Zones (SEZs) led to a decline in outbound shipment of the yellow metal by $800 million in May, compared to the same month a year before, Commerce Secretary S R Rao told reporters here.
Since the fall in total exports, of $270 mn, was less than the contraction in gold exports, this explained why the total outbound shipment fell, he said.
In its Foreign Trade Policy supplement for 2014-15, the commerce department banned gold trading from SEZs without value addition. It directed that the minimum value addition had to be three per cent for export of gold jewellery from SEZs, while the incremental value needed to be five per cent in the case of gold-studded jewellery, said Anup Pujari, the director general of foreign trade (DGFT).
The new directive came into effect from May 1 and had a serious effect on export of gold products. Among others, the secretary said engineering goods continued to show a decline in May but the rate of fall had receded.
He said while the US economy was on a recovery path, India’s largest trading bloc, the European Union, was still struggling. India send almost 19 per cent of its exports to Europe.
The Federation of Indian Export Organisations (FIEO) said weak export data reflected sluggish global recovery. “The global growth has been uneven. We have seen a few green shoots in the USA and Japan but the euro area continues to be a cause of concern,” said FIEO president M Rafeeque Ahmed.
However, the pace of these imports declined from the month of April, when it rose 139 per cent to touch $7.5 bn against $3.2 bn in the same month of the earlier financial year.
For April-May, the first two months of the financial year, gold and silver imports were up 109 per cent to $15.9 bn against $7.6 bn in the corresponding period of 2012-13. Analysts said the finance ministry’s raising of Customs duty on gold from six per cent to eight per cent and RBI measures might dampen its import to some extent in coming months.
For these first two months, the trade deficit was $37.9 bn, compared to 31 bn in the corresponding period of 2012-13. “As far as the trade deficit is concerned, it is very worrisome...It is largely contributed by heavy import of gold and silver,” Rao said.
He said it was important to contain the balance of trade, which directly contributed to the CAD. “Even if nothing has been done to boost exports measures are being taken to contain imports. It is good for the economy,” the secretary said.
In May, oil imports rose three per cent to $150.2 bn against $145.8 bn in the same month of 2012. The growth was roughly the same as in April, 3.9 per cent. Non-oil imports rose 9.1 per cent to $29.6 bn in May, compared to $27.15 bn a year before. However, 28.3 per cent of this comprised only gold, so its repercussion on industrial growth is difficult to gauge.
‘Falling rupee may not help exporters’
As the rupee weakened by 36 paise on Monday to close at 57.87 against a dollar, the commerce department said a depreciating domestic currency did not necessarily help exporters and it rather favoured a stable exchange rate. “A stable exchange rate encourages exports because there is certainty of atmosphere,” director general of foreign trade Anup Pujari told reporters here.
While economic theories suggest depreciation of currency should help exports, it is not entirely true in India’s case, he said. “Our top items of exports are pharmaceuticals and gems and jewellery which have high import contents. As such, depreciation of the rupee may not help exporters,” Pujari said.
