NEW DELHI: India`s exports rose 12.4 percent in May over the previous year -- the sharpest rise in six months -- helped by a weaker rupee, government data showed on Wednesday.
Exports in May reached USD 28 billion, data released by the Ministry of Commerce and Industry showed.
However, the trade deficit stood at USD 11.23 billion, up from USD 10.09 billion in April.
"The May trade deficit widened to USD 11 billion and this was the third month in succession when trade deficit stayed in double digits as imports, especially oil, increased.
"Nevertheless, the trend is not worrying and we remain comfortable with our 2014/15 trade deficit forecast at USD 155 billion. The encouraging takeaway from today`s data is the double-digit growth in exports. Exports either contracted or grew in low single digits during November–April 2014.
"With better economic activity especially in the U.S. and Europe, Indian exports are likely to stay on a reasonably better footing this time. Unless global growth disappoints, risks to trade deficit remains contained even if gold import restrictions are relaxed further."
"Apart from base effects marginally boosting the May export growth on year terms, the trend remains supportive. But the bigger variable to watch is import growth as the sharp correction in non-oil imports last year was not by virtue of structural changes, but engineered by trade restrictions on gold imports and the weak domestic environment.
With a turnaround expected in the capex (capital expenditure) cycle, demand for imported capital and engineering goods are bound to rise, until the domestic manufacturing base can adjust. This might offset any anticipated rationalisation in fuel imports.
By extension, we see scope for the CAD (current account deficit) to re-widen to above 2.5 percent in FY15 from -1.7 percent last year. Nonetheless, this should not be a cause for concern as funding needs will be well-cushioned by flows attracted to the revival in growth on a rebound in domestic drivers.
A tail risk here is the direction of the U.S. rates, with an earlier-than expected push to hike rates likely to revive uncertainties for the emerging markets space, including India."
India`s current account deficit narrowed to USD 1.2 billion, or 0.2 percent of gross domestic product, in the January-March quarter, data released by the central bank showed last month, falling for the third straight quarter on the back of a sharp fall in gold imports.
The current account deficit, which touched a record high of USD 87.8 billion in the 2012/13 fiscal year, eased to USD 32.4 billion in 2013/14 after a government crackdown on gold imports.
The trade deficit in the January-March period fell to USD 30.7 billion from USD 45.6 billion a year earlier, while the capital and financial account surplus fell sharply to USD 2 billion versus USD 17.8 billion a year ago.