India’s Jan Trade Deficit Widened to US$20bn. The only silver lining in the data is the first positive export growth reading in the last 9 months with exports at US$25.6bn, up 0.8%. Imports continue to edge higher to US$45.6bn up 6% led by both oil and non-oil up 6.9% and 5.7% respectively
Cumulatively during Apr-Jan, exports were US$240bn down -4.9%, while imports at US$407bn were flat thus resulting in the deficit widening to US$167bn v/s US$155bn last year. Incorporating the latest trade and GDP data (GDP impacts the calculation of ratios), we expect the FY13 current account deficit (CAD) to rise to US$87.9bn or 4.7% of GDP vs US$76bn or 4% expected earlier.
Policy makers are aware of the gravity of the problem as reflected in Governor Subbarao’s recent comments on the level, the quality and financing of the CAD. Moreover, over the last few months, officials have taken several steps to boost dollar inflows including (1) de-regulating NRI deposit rates, (2) relaxing ECB norms, (3) increasing FII debt limits, (4) liberalization of FDI and (5) postponement of GAAR and (6) higher duties on gold.