India’s exports rose 10.22% in June, the second successive month of double-digit growth, but a 65% surge in gold imports pushed the trade deficit to a 11-month high, triggering worries about a widening current account balance.
Exports during June stood at $26.48 billion, mirroring recovery signs in the US and parts of Europe, India’s biggest export markets.
Exports growth of 9.3% in the first quarter (April to June) of 2014-15 compared to the same quarter a year ago, reflected improving global demand. The rise in exports was helped by strong growth in engineering goods (21.6%), ready-made garments (17.9%) and petroleum product (21.6%).
Growth in non-oil imports excluding gold remained muted at 1.9% year-on-year indicating weak domestic demand. Overall, oil imports grew by 10.9% and non-oil imports by 7% year-on-year in June.
Gold imports, however, rose to $3.1 billion in June, up from $1.8 billion in the same month last year, in a sign that the precious metal’s bulk buying may have jumped following easing of rules by the Reserve Bank of India. Customs duties, however, have remained unchanged at a record 10%, which was imposed to stem dollar outflows, arrest the rupee’s slide and contain a widening a current account deficit (CAD) — the gap between dollar inflows and outflows of a foreign currency.
According to experts, while export growth is expected to gain momentum with global recovery, imports too will rise as some of the restrictions on gold imports have been lifted and imports of oil, consumption and investment goods are likely to rise with recovery in GDP growth during 2014-15.
“Large private gold importers have been allowed to resume importing gold and nominated banks have been permitted to offer gold metal loans to jewellery manufacturers from May. The impact of this is partly visible in June data as gold imports doubled to $3.2 billion from $1.7 billion in April 2014,” credit rating and research firm Crisil said in a research report.
Any surge in global crude oil prices due to intensification of the Iraq strife could also worsen India’s trade deficit.