First the bad news. India’s merchandise exports fell 3.67% in February, the first contraction in eight months, making it nearly impossible to achieve the full-year target of shipping out goods worth $325 billion.
And now for the good news. A sharp fall in imports helped lower the trade deficit, thereby softening the pressure on the current account balance.
India’s current account deficit (CAD) — a measure of the difference between dollar inflows and outflows — dropped sharply to $4.2 billion or 0.9% of GDP during October-December 2013 from $31.9 billion or 6.5% of GDP a year ago, aided by plunging gold imports and a rebound in exports that has helped bring in precious dollars.
In February, however, exports fell 3.67% from a year earlier to $25.69 billion, compared with 3.8% growth in January. Imports fell 17.09% year-on-year during the month to $33.82 billion.
CAD stood at $5.2 billion or 1.2% of GDP during July-September 2013. With a CAD of $31.1 billion during April-December 2013, India looks on course to contain the deficit within $45 billion in 2013-14, down from $88 billion last year.
The gap has tapered down sharply over the last two quarters as the government and the Reserve Bank of India launched a string of steps including curbs on gold imports and measures to arrest a sliding rupee.
“Gold imports will begin to rise once the restrictions on them are relaxed, and imports of oil, consumption and investment goods will pick up as GDP growth improves, resulting in a higher CAD in 2014-15,” research firm Crisil said in a report.