August exports up 22.5%, imports soar 32.2%

The country's merchandise exports rose 22.5 per cent in August to $16.64 billion from $13.58 billion a year ago. Imports also jumped 32.2 per cent annually to $29.67 billion from $22.44 billion, resulting in huge monthly trade deficit of $13.03 billion, which is rising steadily since the beginning of the current financial year due to an increase in non-oil imports.

The balance of trade during April-August stood at $56.62 billion against a trade deficit of $40.27 billion in the corresponding period of 2009-10. This is because while exports continue to grow on a month-on-month basis, the pace has not been as rapid as in the case of imports, which has soared unabatedly on the back of a strong domestic recovery.

Total exports in the first five months of 2010-11 stood at $85.27 billion, up 28.6 per cent from $66.32 billion in the same period a year ago. Imports during the same period grew by 33.1 per cent to $141.89 billion from $106.60 billion.

Analysts and economists said even as capital inflows were expected to be robust and would help in managing the current account deficit, it was expected to be high owing to a widening trade deficit.

The current account deficit, which is the broadest measure of trade in goods and services and income and transfer payments, has shot up to $13.73 billion in the first quarter of the financial year from $4.5 billion a year ago, according to the latest data released by the Reserve Bank of India.

"The higher trade deficit combined with lower invisibles surplus resulted in the widening of the current account deficit," it said in a statement.

A massive rise in the current account deficit has also pushed the rupee today to its peak in the last five months at 44.65 to the dollar, highest since May 4. Appreciation of the rupee is also one of reasons for flat growth in exports compared to imports.

"The rise in the deficit is primarily on account of higher non-oil imports. This is in keeping with the economic upturn. While current year data commodity composition of trade is not yet fully available, anecdotal data points indicate that the rise in imports is primarily driven by investment goods," said Citigroup India economists Rohini Malkani and Anushka Shah said in a note. Citigroup estimated trade deficit to reach $144 billion in the current financial year.

Non-oil imports during April-August reached $101.15 billion, up 33.7 per cent from $75.67 billion in the same period a year ago. In the same period, import of petroleum, oil and lubricants stood at $40.73 billion, 31.7 per cent more over $30.92 billion.

The current account deficit in the entire financial year and also in 2011-12 is likely to be 3.5 per cent of the gross domestic product, according to a research by Goldman Sachs.

"Strong domestic demand continues to bring in imports, while exports remain weak due to weak external demand and real exchange rate appreciation from March 2009 to March 2010. With oil prices expected to rise and domestic demand remaining strong, we think India's current account deficit is on a high trajectory," according to Tushar Poddar of Goldman Sachs.