Mumbai: Moderation in June trade deficit is due to weak domestic demand and a steep 6.7 per cent decline in non-oil imports as well as lower oil and gold imports, the two biggest forex outflow heads, Japanese brokerage Nomura said on Friday.
Noting that excluding oil and gold imports, the overall import bill was flat during the month, a Nomura report said, "overall, the lower trade deficit points to the weak domestic demand and the narrow trade deficit in June is largely attributable to lower gold imports.
"Excluding oil and gold, imports remained flat at around USD 21.1 billion against USD 21.9 billion in May, suggesting that weak domestic demand is already reflected in the trade data," Nomura India chief economist Sonal Varma said.
Earlier in the day, the government released trade data for June showing a dip in trade deficit to USD 12.2 billion against USD 20.1 billion in May, which was a 7-month high.
For the second month in row, exports declined 4.6 percent in June to USD 23.79 billion, while imports too declined marginally by 0.37 percent to USD 36 billion during the month against a 1.1 percent contraction in May.
The main reason for decline in imports and trade deficit was dip in gold and silver imports, the Director General of Foreign Trade (DGFT) Anup Pujari told reporters in New Delhi. Gold and silver imports came down to USD 2.45 billion from USD 8.4 billion in May.
Cumulatively, exports during April-May too dipped by 1.41 percent to USD 72.45 billion. However, imports during the period were up by 5.99 percent to USD 122.6 billion.
Oil imports grew 13.74 percent to USD 12.76 billion, from USD 11.22 billion in the same period last year.
On the other hand, non-oil imports declined by 6.7 per cent to USD 23.2 billion.
Saying that the main reason for lower trade deficit is the 6.7 percent decline in non-oil imports, Nomura said this indicates a sharp moderation in external as well as domestic demand momentum.
"Oil imports moderated to USD 12.8 billion in June versus USD 15 billion in May, largely reflecting seasonal factors, while non-oil imports were lower due to a sharp decline in gold and silver imports which stood at USD 2.45 billion in June against USD 8.4 billion in May," Nomura said.
Going forward, the report said, "while gold imports are likely to remain in check, we expect the trade deficit to widen marginally again in July as a result of seasonal factors and weak exports.
"A combination of weak currency, subdued domestic demand and lower gold imports should reduce the current account deficit to around 4.3 percent of GDP in FY14 from 4.8 percent last fiscal," the report concluded.
First Published: Friday, July 12, 2013, 20:36