Rising gold import widens trade deficit sequentially

Growing in double digits for the fourth straight month, exports rose 13.47 per cent in October. Though the exports performance is good news for the slowing economy, as it indicates a turnaround might be round the corner, it was not strong enough to compensate for the increased imports of gold during the month owing to the festival season.

As a result, the trade deficit, or the excess of imports over exports, widened again in October. Data released by the government here on Monday shows that the trade deficit grew to $10.56 billion in October compared to $6.7 billion in September—the lowest in two-and- half years. Gold and silver imports rose to $1.37 billion in October compared with $800 million in the previous month, according to the data released.

Commerce Secretary S. R. Rao told reporters here on Monday that the government was confident of hitting its export target of $325 billion by the end of the fiscal. The government has also said that the ballooning current account deficit, or the excess of outflow of foreign exchange from the country over the inflows, has been brought under control using curbs on imports of gold and that it will be contained within $60 billion. Despite the surge in gold imports during October, it is widely expected, the government will manage to keep the current account deficit well within the $60-billion target. Gold imports—through the official channel at least—have been declining on the back of the restrictions imposed by the government.

“We think we can peg the current account deficit at $60 billion or below,” Finance Minister P Chidambaram had said earlier this month. The current account deficit had touched an all-time high of $88.2 billion, or 4.8 per cent of GDP, in the last fiscal.

PTI reports:

Cheering the rise in exports, India Inc, on Monday, said the turnaround was on account of a rebound in the U.S. and European economies and that the Government should restore duty drawback rates to bring down the trade deficit.

“The steady rise in exports augurs well for the economy. Growing exports reflect the dynamism of Indian exporters as well as the impact of proactive support from the Government,” FICCI President Naina Lal Kidwai said.

Overall, imports declined by 14.5 per cent to $37.8 billion in October as compared to the same period last year.

“A smart 13.47 per cent increase in exports for October, the fourth consecutive monthly rise, is a reflection of an authentic turnaround in India’s external trade—thanks to signs of improvement in Europe and in the U.S.,” Assocham Secretary General D S Rawat said.

“With imports falling by a big gap of 14.50 per cent and non-imports by even bigger margin of 22.80 per cent, worries over current account deficit (CAD) should recede,” Mr. Rawat said.

More In: Industry | Business