Trade deficit narrows 23%

The gap was narrowed as merchandise imports fell to $37.05 bn in the month from $37.30 bn in August 2012

The government’s import-compressing measures and a recovery in the US markets have started yielding results on the trade deficit.

Trade deficit, part of the wider current account deficit (CAD), declined 23 per cent in August — to $10.91 billion from $14.17 billion in the same month last year. The gap was narrowed as merchandise imports fell to $37.05 billion in the month from $37.30 billion in August 2012, even as oil imports rose 18 per cent.

Gold imports fell to $0.65 billion in August, from $2.20 billion the previous month. The government had in August raised import duty by two percentage points to 10 per cent. On the other hand, exports continued their bull run, rising 13 per cent to $26.14 billion in month, from $23.14 billion in August 2012.

Besides, the deficit was 11 per cent lower when compared with July’s $12.27 billion and the lowest trade deficit figure so far this financial year.

As a result, the trade deficit declined 1.75 per cent to touch $73.36 billion in the first five months of the current financial year, against $74.67 billion in the corresponding period of last year.

The narrowing of trade deficit will come as a relief to the government, which aims to limit CAD at 3.7 per cent of GDP, or $70 billion in the current financial year against the record 4.8% of GDP or $88 billion in 2012-13. Trade deficit had touched $192.46 billion in 2012-13, according to figures released by the commerce department. However, there is always difference in the trade data provided by the commerce department and the Reserve Bank of India, which releases CAD. According to RBI figures, trade deficit had stood at $195.7 billion in 2012-13.

The much-awaited data on CAD, slated to release this month end, will however take into account trade deficit data of the first quarter (April-June). Trade deficit in the current financial year started coming down from July year-on-year (see chart). Hence, the results of lower trade deficit would be felt on the second quarter CAD data only.

Trade deficit rose 23.54% to touch $50.17 billion in the first quarter of the current financial year against $40.61 billion in the corresponding period of last financial year.

However, it should be remembered that trade in services, remittances and investment income will play a crucial role in CAD, besides trade deficit.