Exports dip 1.1% in May; trade deficit highest in 7 months
New Delhi: India's exports entered the negative zone after a gap of four months, recording a contraction of 1.1 percent in May and leading to a trade deficit of USD 20.1 billion, highest in the last seven months.
The decline in shipments, according to Commerce Secretary S R Rao is mainly due to the steps taken by the government to suspend gold trading in special economic zones (SEZs). Gold exports from SEZs in May declined by USD 0.8 billion.
Besides problems in gold, weakness in the European markets has also impacted exports growth.
The country's exports in May stood at USD 24.51 billion compared to USD 24.78 billion in the same month of 2012. Imports in May grew by 6.99 percent to USD 44.65 billion.
"As far as trade deficit is concerned, it is very worrisome...It is largely contributed by heavy imports of gold and silver," Rao said.
Gold and silver imports, during the month under review, grew by 89 percent to USD 8.39 billion. During April-May period, it grew by 109 percent to USD 15.88 billion.
However, exports during the first two months of the fiscal grew by 0.21 percent to USD 48.67 billion. Imports during the period was up by 8.88 percent to USD 86.6 billion.
"Exports in May, there has been a negative growth which is largely contributed because government in the beginning of May has put restrictions on gold trading in SEZs," he said.
Oil and non-oil imports in May grew by 3 percent and 9.1 percent to USD 15 billion and USD 29.62 billion respectively.
The Secretary said hopefully from June, exports will bounce back as gold trading activities have started again in SEZs.
"We have now made it mandatory that even in SEZ, gold units shall comply with the DGFT notification of minimum value addition of 3 percent in gold jewellery and 5 percent in gold and precious stone studded jewellery," Rao said.
Prior to May 1, the value addition norm were not applicable for SEZ exports and now this has to be adhered to.
The biggest trade gap of USD 21 billion was recorded in October, 2012.
"In May, because we stopped gold trading in SEZs, that itself (gold exports) has declined by USD 0.8 billion...And if you look at export figure for May, our shortfall has been much less than USD 0.8 billion...Gold trading in SEZs is hitting India's exports," Rao said.
He said although the US market is improving, the EU is still not out of the woods. Both the markets accounts for about 30 percent of India's exports.
The secretary hoped that in June, trade deficit "should be contained and exports performance continue to perform well".
"What is important is to contain balance of trade which directly contributes to current account deficit (CAD). Even if nothing has been done to boost exports per se, measures are being taken to contain imports. It is good for the economy,' Rao said.
The CAD, which is the difference between the inflow and outflow of foreign currency, touched a record high of 6.7 percent in the October-December quarter on the back of rising oil and gold imports.
On the impact of rupee fall on exports, Director General of Foreign Trade (DGFT) Anup Pujari said it does not benefit much for exports because of high import content in the India's major shipments (like pharmaceuticals and gems and jewellery).
"We in the commerce ministry are looking for a stable exchange rate...Rupee fluctuation is not good for business...We need a stable rupee," Pujari said.
The domestic currency has hit a life-time low of 58.98 on last Tuesday. With this the domestic currency has lost over 5.5 percent since May.
Reacting on the data, FIEO said the figures indicate that the global recovery is still weak.
"We may be seeing some decline in trade deficit due to softening of commodity prices and dip in gold import due to RBI restrictions and hike in (its) import duty," it said.