July trade deficit widens to $10.8 bn...

India’s trade deficit widened to $10.79 billion in July, up 83 per cent from $5.87 billion in the year-ago month, as the growth in imports far outstripped exports.

The country’s growth in merchandise exports during July grew a healthy 31.2 per cent to $16.34 billion in July over the same month last year.

Imports, on the other hand, registered an even sharper rise of 48 per cent to $27.14 billion during the month under consideration, mainly due to the increase in the value of crude oil imports, prices of which touched an all-time high in the same month.

Oil imports during July expanded 70 per cent and stood at $9.5 billion as against $5.6 billion seen in the year-ago month. Non-oil imports in July stood at $17.66 billion, which is an increase of 38.7 per cent over $12.73 billion in the same month last year.

A rapid increase in the trade deficit puts pressure on the rupee to depreciate. But economists say that in July, the depreciation in the rupee was cushioned because of a special window set up by the Reserve Bank of India to buy oil bonds held by oil marketing companies.

As a result, oil companies, which need dollars to buy crude oil for their refineries, sold all the oil bonds they held to the central bank. The mechanism was discontinued in late July.

JULY EXPORTS AND IMPORTS
	July 2007 ($)	July 2008 ($)	April-July 2007-08 ($)	April - July 2008-09 ($)	July 2007 (Rs)	July 2008 (Rs)	April-July 2007-08 (Rs)	April - July 2008-09 (Rs)
Exports (% growth)	17.87	31.20	19.13	24.60	2.70	39.10	7.42	27.60
Imports (% growth)	25.86	48.10	34.11	34.20	9.62	56.90	20.97	37.30
Source: Department of Commerce

"The rapid increase in trade deficit remains a cause for concern and, as a result, the depreciating pressure on the rupee will continue. But with softening crude oil prices, the downward pressure on the rupee will soften in the coming months. I expect the rupee to remain bound in the 42.5 to 44 range against the dollar,” said Abheek Barua, chief economist, HDFC Bank.

The increase in the pace of exports in July was aided by the near 10 per cent depreciation in the rupee against the dollar seen since the beginning of 2008.

High crude oil prices meant that domestic refiners like Reliance Industries sold their products at a higher rate in the overseas markets. Moreover, with a 40 per cent increase in steel prices, the value of engineering goods’ exports also increased.

In a statement released by the Federation of Indian Export Organisations, its president Ganesh Kumar Gupta said that export growth was aided by the increase in input prices.

Source: Business Standard