Trade deficit widens on huge gold imports

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A surge in imports driven by massive gold purchases widened the trade deficit sharply, overshadowing the further improvement in exports performance. Worried government said it will take measures to improve the trade deficit, which contributed massively to the record high current account deficit. Exports rose 1.68% in April to $24.1billion, fourth straight month of increase, while imports climbed 10.9% to $ 41.95 billion, yielding a trade deficit of $ 17.8 billion, data released on Monday showed.
“The rise in gold imports is surprising. It wasn’t expected,” trade secretary SR Rao told reporters releasing the data. India’s current account deficit is expected to touch record high of 5% of GDP in 2012-13, as measures to curb gold imports have only had a marginal effect. The country imported $52.5 billion worth of gold and silver in 2012-13 against $56.7 billion in 2011-12, but experts say the April jump in gold imports should be one off, as investment demand for the yellow metal is likely to remain weak. Gold and silver imports grew by 138% in April on a year-on-year basis, from $3.1billion last year to $7.5 billion this year, led by falling prices and festival demand.
“…we see the recent rise in gold imports as a bunched up rise in consumption demand, which should fade over the coming quarters. Indeed, excluding oil and gold, import growth remains in negative territory, reflecting weak domestic demand,” Sonal Varma of Nomura wrote in a note on Monday. The record high trade deficit overshadowed the steady improvement in exports, driven by higher shipments of gems & jewellery, rice, readymade garments, cotton and marine prodlast year’s $300.6 billion. Exports had shrunk 1.6% in the last fiscal.
The fresh set of incentives under the foreign trade policy announce last month came into effect from May 1 and are expected to help give a push to exports, helped by a revival of demand in the US economy. A RBI committee last week suggested a slew of measures like introduction of differential tax regime and increasing the scope of interest subsidy scheme for exporters. “The RBI committee has given their recommendations and we are positive on dollar denominated credit being available to exporters, should these measures be accepted by the central bank”, said Rao.
Engineering exports saw an 8.6% contraction due to power cuts and high cost of credit making exports less competitive. Petroleum imports grew by 3.9% during the month, from $13.6 billion last year to $14.1 billion now. Trade deficit was $14 billion in April last year and $10.3 billion in March this year. Though government has taken several measures it the form of duty increase to deter gold imports, the fall in global prices have led to neutralization of the duty position, said DGFT Anup Pujari.
Rao said that government will come up with ways to address the growing trade deficit. ucts. Readymade garments grew by 8.6%, as against a contraction in most part of last year, indicating a pickup in overseas demand. “Exports have now started responding positively to the Government interventions and market cues. The spur in the demand can be leveraged, if RBI further reduce the credit and ease out the tight liquidity conditions”, said A Sakthivel, chairman, apparel export promotion council.
Commerce ministry has set an export target for the fiscal at $325 billion, about 8% growth from prodlast year’s $300.6 billion. Exports had shrunk 1.6% in the last fiscal. The fresh set of incentives under the foreign trade policy announce last month came into effect from May 1 and are expected to help give a push to exports, helped by a revival of demand in the US economy. A RBI committee last week suggested a slew of measures like introduction of differential tax regime and increasing the scope of interest subsidy scheme for exporters. “The RBI committee has given their recommendations and we are positive on dollar denominated credit being available to exporters, should these measures be accepted by the central bank”, said Rao.
Engineering exports saw an 8.6% contraction due to power cuts and high cost of credit making exports less competitive. Petroleum imports grew by 3.9% during the month, from $13.6 billion last year to $14.1 billion now. Trade deficit was $14 billion in April last year and $10.3 billion in March this year. Though government has taken several measures it the form of duty increase to deter gold imports, the fall in global prices have led to neutralization of the duty position, said DGFT Anup Pujari. Rao said that government will come up with ways to address the growing trade deficit.

Source: Economictimes.Indiatimes.com
Source: Bullion Bulletin

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