India’s trade deficit widens to record 10% of GDP

[Naveed Yaseen]

NEW DELHI: India’s trade deficit widened in May to a record $10.77 billion as the pace of export growth slowed and oil import costs surged, official data showed on Tuesday, helping the rupee fall to a 15-month low.

Analysts said the surge in global oil prices would keep pressure on the deficit and rupee in months ahead with demand for oil products in Asia’s third-largest economy seen remaining robust despite a hike in fuel prices.

“The rise in the oil import bill was expected as global prices have surged. The market was anticipating a high trade deficit and current account deficit,” said D K Joshi, principal economist at domestic ratings agency CRISIL. Data released by the Commerce and Industry Ministry showed India’s export growth slowed to a 14-month low of 12.9 per cent in May, sharply down from expansion of 36.6 per cent in April due in part to slowing sales in key markets like the United States.

Exports in the month stood at $13.78 billion, up slightly from $12.21 billion a year ago, while imports grew by an annual 27.1 per cent to $24.55 billion, driven mainly by oil purchases, which surged by 50.8 per cent to $8.47 billion.

Global crude oil prices rose almost 16 per cent in May to $130 a barrel at the end of the month. On Tuesday, oil was trading at just over $142 a barrel.

The trade deficit in May widened from $7.1 billion in the same month a year ago, and was up from $9.87 in April 2008. The rupee eased to a 15-month low of 43.440/450 to a dollar at 1030 GMT, sharply lower from Monday’s close of 43.0250/0300 as rising prices of crude intensified concerns over the trade deficit and the stock market fell sharply.

The local unit has lost more than 9 per cent so far in 2008. For the first two months of the 2008/09 fiscal year, the deficit stood at $20.64 billion, higher than $13.92 billion in the same period of last year.

“In the first five months of the calendar year, India’s trade deficit has amounted to $41 billion, more than 60 per cent higher than $25.5 billion deficit for the same period of 2007,” Robert Prior-Wandesforde, an economist with HSBC, said in a report.

“At this rate, the country is heading for a triple-digit trade deficit in calendar 2008, equivalent to about 10 per cent of GDP.” But other analysts said the depreciating rupee would help revive export growth and improve profit margins of software exporting firms.

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