Bloomberg News

India Trade Deficit Widens as Import Growth Outpaces Exports

February 09, 2012

(Updates with economist’s comment in fourth paragraph.)

Feb. 9 (Bloomberg) -- India’s trade deficit widened to a three-month high in January as import growth outpaced the climb in exports, the top bureaucrat in the commerce ministry said.

Merchandise exports rose 10.1 percent to $25.4 billion last month from a year earlier, Commerce Secretary Rahul Khullar told reporters in New Delhi today. Imports gained 20.3 percent to $40.1 billion, leaving a trade deficit of $14.7 billion, he said.

A trade gap Khullar said may reach $160 billion in the current financial year threatens to revive pressure on the rupee after it tumbled the most in Asia last year. Europe’s debt crisis has curbed overseas sales by nations from Thailand to China, and the Reserve Bank of India has signaled interest-rate cuts to shield growth providing inflation slows further.

“The slowdown in the industrialized nations is affecting demand for India’s exports,” N.R. Bhanumurthy, a New Delhi- based economist at the National Institute for Public Finance and Policy, said before the report. “That will put pressure on the rupee to weaken.”

The rupee depreciated 0.2 percent to 49.2975 per dollar as of 12:12 p.m. in Mumbai. The currency has rebounded 7.7 percent so far this year, after falling 16 percent in 2011. The BSE India Sensitive Index fell 0.4 percent. The yield on the 8.79 percent note due November 2021 advanced 2 basis points, or 0.02 percentage point, to 8.25 percent.

Europe Slowdown

The slowdown in Europe is weighing on exports, Khullar said, adding the current-account deficit may reach 3.5 percent of gross domestic product in the 12 months through March. The next financial year will be a tough one for overseas sales, he said.

India’s government two days ago predicted the weakest economic expansion this year since 2009. Gross domestic product will probably rise 6.9 percent in the 12 months through March from a year earlier, it said. Asia’s third-largest economy expanded 8.4 percent in 2010-2011.

Growth has slowed after the RBI raised rates by a record amount from 2010 until October last year to fight price gains and as Europe’s turmoil and policy gridlock deter investment.

The central bank on Jan. 24 cut the amount of deposits lenders need to set aside as reserves for the first time since 2009, seeking to ease a cash squeeze and bolster expansion. It left the repurchase rate at 8.5 percent for a second meeting.

Today’s report showed the climb in exports was the fastest in three months. At the same time, it fell short of the pace recorded each month from November 2009 through October 2011.

--Editors: Sunil Jagtiani, Lily Nonomiya

To contact the reporter on this story: Tushar Dhara in New Delhi at tdhara1@bloomberg.net.

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net.


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