Temporary relief to Indian economy: Trade deficit falls to lowest in 5 months, import growth slows : 16-10-2018

India’s trade deficit in September narrowed to lowest in the last five months since the imports growth slowed even as exports fell marginally during the month. September trade deficit fell to $13.98 billion, according to the data released by the Ministry of Commerce and Industry on Monday.

The overall trade deficit stood at $94.32 billion in the first six months – April to September – of the current financial year 2018-19, the data showed. “The decline in the merchandise trade deficit to $14 billion in September 2018 from $17-18 billion in the previous three months has been driven by seasonal factors and is largely in line with our estimate,” Aditi Nayar, Principal Economist, ICRA, said.

This might come as a temporary relief to the government struggling to keep current account deficit in check, in the wake of mounting crude oil prices and a rapid fall in rupee. “The merchandise trade deficit recorded a sharp YoY deterioration to $14 billion in September 2018 from around $9 billion in September 2017, in line with the absolute widening seen in August 2018. This underscores that the correction in September 2018 relative to the size of the trade deficit in the previous three months, has been driven by seasonal factors, and is therefore likely to offer only temporary relief,” Aditi Nayar said.

Since January this year, the rupee has depreciated about 15%, meanwhile touching a lifetime low of 74.48/$ on October 11. As part of its efforts to curb imports, the government recently hiked import duty on select communication items to up to 20%. Earlier last month also, the government had raised import duties on 19 ‘non-essential’ items.

India’s imports recorded an increase of 10.45% to $41.9 billion in September 2018 from the same period last year. For the April-September period, the overall increase in imports works out to be 16.16%.

The goods exports, which were seen rising since April this year, however, entered in the negative zone by registering the first monthly decline for the current financial year. In September, the country’s exports dropped 2.15% as against the same period a year ago to $27.95 billion, the data showed. Exports registered an increase of 12.54% for the first six months of the current financial year.

The decline in exports was mainly due to the higher base last year seen immediately after the GST implementation, Commerce Ministry said. “This decline is entirely due to the base effect resulting from September 2017 being an abnormally high growth month of about 26 per cent due to imminent cut off then for drawbacks at pre-GST rates,” the commerce ministry official statement showed.

Despite the overall decline in exports during the month, chemicals, petroleum products, drugs & pharmaceuticals, handloom products, cotton yarn & fabric and plastic recorded an increase in exports, it said.

Source : Financial Express

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