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India’s trade deficit to fall in 2012-13 – Crisil

Call it a consolation prize, but India’s goods trade deficit, which zoomed 56% last year to $185 billion, is likely to fall this year due to the poor economy, Crisil Research said.

Trade deficit refers to the shortfall between how much a country earns through exports to other countries and how much it needs to shell out for its imports. A high deficit could devalue the local currency and lead to a sharp increase in local prices, and even make the country bankrupt as far as foreign currency is concerned, making it difficult to get foreign goods such as oil.

India has a target of keeping its trade deficit in the $120-140 billion
range, or about $10-12 bln per month. India’s trade deficit for November 2012 at $19.3 billion was 7.9 per cent lower than the previous month.

“Import demand is likely to weaken in line with decelerating domestic growth. As a consequence trade deficit in FY13 is expected to be lower than last fiscal,” Crisil Research said.

Crisil’s comments came after reviewing foreign trade data for November, which showed a month-on-month fall in imports. Imports had increased, month-on-month, in September and October. November imports, however, were still higher by 6.3% when compared to November 2011.

However, Crisil Research seemed to be taking heart from the five-month figure (April to November) when it predicted a lower trade deficit for the current financial year of 2012-13.

“For the April-November 2012 period imports stood at $ 318.7 billion as compared to $ 323.8 billion (a decline of 1.58 per cent) during same period last year,” it noted.

About a third of India’s imports are composed of petroleum products (mostly crude oil.) An increase in oil prices compared to last year has resulted in a bulge in the oil import bill.

At $14.5 billion, oil imports in November 2012 were 1.8 per cent lower than the previous month but 16.7 per cent higher than November 2011 ($12.4 billion).

Cumulatively, oil imports for April-November 2012 at $110.1 billion were 10.8 per cent higher than the same period last year. Non-oil imports were valued at $ 208.63 billion, 7.07 per cent lower than the non-oil imports of the same period last year.

It must, however, be noted that exports continue to suffer due to weak global demand. Exports for November, valued at $22.3 billion, were 4.17 per cent lower than exports recorded in November 2011.

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