NEW DELHI (Reuters) - India's trade deficit rose to $20 billion in January from $17.7 billion in the previous month as imports surged while exports rose only slightly, adding pressure to a widening current account deficit and limiting the scope for further interest rate cuts by the RBI.
India's exports rose an annual 0.8 percent to $25.59 billion in January, while imports for the month rose 6 percent to $45.58 billion, a senior trade ministry official said on Wednesday, fuelled by oil imports.
"The oil import bill is definitely a challenge, but for a growing economy, energy needs have to be met," Commerce and Industry Minister Anand Sharma said at an event in Mumbai.
Oil imports rose 6.9 percent from a year ago to $15.9 billion.
The current account deficit touched a record high in September at 5.4 percent of GDP due to slowing exports and heavy oil and gold imports.
Worried that India's ability to fund the rising current account deficit is becoming increasingly stretched, and will lead to fresh pressure on the rupee, the RBI warned after a 0.25 percentage point reduction in its policy interest rate last month that future rate cuts will depend upon the current account gap narrowing and inflation subsiding.
Exports between April and January fell 4.9 percent to $239.7 billion. India's exports have fallen since last year as demand slowed from key markets.
On Monday, Reserve Bank of India Governor Duvvuri Subbarao reiterated his concern about financing the current account deficit with volatile capital flows, and he projected the deficit to touch a record high for fiscal year 2012/13, ending in March.
Many analysts expect the current account deficit to be around 4.5-5.0 percent of GDP in 2012/13, higher than 4.2 percent previous year.
"The high current account deficit is unsustainable as it can't be funded for a long time with capital flows and it will get adjusted through the exchange rate," said A Prasanna, economist, ICICI Securities Primary Dealership. "The exchange rate will depreciate when the correction happens."
The rupee touched its lowest in over a month in early January at 55.38 to the dollar, but has since recovered on capital inflows.
Portfolio inflows into India were robust in Asia's third largest economy at $31.41 billion in 2012 and $8.34 billion so far in 2013.
(Reporting by Matthias Williams, Arup Roychoudhury amd Neha Dasgupta; Writing by Suvashree Dey Choudhury; Editing by Tony Munroe and Simon Cameron-Moore)
