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. INDIA TRADE – Sharp decline
in trade deficit
India’s trade deficit in December unexpectedly
narrowed to a three-year low as exports surged
while imports declined. The limited details show
that exports jumped by a record 36.4%YoY, while
imports fell 11.1%, the first ever decline. The trade
deficit (customs basis) shrank to a mere USD2.6bn
in December from USD8.9bn in November.
Exports in April-December 2010 grew 29.5%YoY
to USD164.7bn, while imports stood at
USD247.1bn, up 19% from the same period last
fiscal. Note that the monthly trade data in the
current fiscal year has been unusually volatile, and,
most likely, the trade deficit will recover.
In December, engineering exports (including small
cars) surged 112%YoY, followed by electronics
(+88%), manmade fibre (+30%) and garments
(+60%). Several imports registered a negative
growth in Dec, including petrol products (-16%),
pearl and gems (- 1%), gold and silver (-30%),
fertilizer (-30%) and coal (-26%). The decline in oil
imports could be related to refinery shutdowns
Importantly, the limited preliminary details appear
to suggest that the decline in imports is not an
indication of significant economic weakness,
especially since imports are expected to recover
following the slump in December. Following the
December outcome, the trade deficit (customs basis)
in calendar 4Q10 printed USD21.2bn, nearly 40%
lower than the deficit in 3Q10.
Although the trade deficit will likely recover in
1Q10, the main implication of the sharp decline in
4Q10 is that the current account (CA) deficit in that
quarter should be lower than the CA deficit of
USD15.8bn reported for 3Q10.
Thus, the fullyear CA deficit for 2010-11could
probably be around 3.2% of GDP, slightly lower
than our current forecast of 3.5%. We maintain that
the CA deficit will widen to 3.8% of GDP in 2011-
12 owing to a combination of strong domestic
demand-led growth and higher global commodity
prices, especially for crude oil.
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