Improvement in exports due to a weak rupee, low base and improved global demand, will also aid in lowering trade deficit in 2013-14-Crisil Research

Overview: India's merchandise trade deficit stood at US$ 10.6 billion in October - almost half of what it was a year ago - as exports grew by a healthy 13.5 per cent and imports contracted due to a continued sharp decline in non-oil imports.

Exports have grown at over 10 per cent in each of the last 4 months (July to October 2013) boosted by a weak rupee and rising global demand on the back of a gradual recovery in US and Europe. During July-October, the rupee was 13 per cent weaker than a year ago. A weaker rupee helps boost exports by raising the relative price competitiveness of Indian goods, particularly in those exports sectors that are not as import intensive, such as textiles and agricultural products.

Latest disaggregated data shows that during July-September, textile exports grew by 16.5 per cent, rice exports by 44.5 per cent, and machinery and transport exports by 14.6 per cent, compared to a year ago. Petroleum products (accounting for over 20 per cent of India's merchandise exports) exports also grew by 26 per cent over the same period, driving up overall export growth.

Merchandise imports fell in October by 14.5 per cent compared to a year ago, due to a sharp decline in non-oil imports. Oil imports also grew at a weak 1.7 per cent in October reflecting stable oil prices and slow volume growth. Weak domestic demand and restrictions on gold imports helped lower non-oil imports by 22.8 per cent compared to a year ago.

Outlook: A significant decline in gold imports and weak capital and consumption goods' imports, due to subdued domestic demand, will help lower growth in non-oil imports during rest of this year. Improvement in exports due to a weak rupee, low base and improved global demand, will also aid in lowering trade deficit in 2013-14. Lower merchandise trade deficit, along with a healthy growth in IT/ITes exports, create downside to our forecast of current account deficit at 3.9 per cent of GDP for 2013-14.

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