India’s trade deficit widens in May

NEW DELHI (Reuters): India’s trade deficit widened in May on higher imports of crude mirroring rising global crude prices, prompting Trade Secretary Rahul Khullar to warn that the trade deficit for the current fiscal could touch the high $145- $150 billion mark.

India’s trade deficit rose 67 percent in May from a month ago, despite a 57 percent increase in exports in May, on the back of strong performance in engineering, petroleum products and electronics driving growth.

However, a surge in imports, especially driven by gold and oil, have again widened the trade deficit, which may in turn pressure the current account deficit.

“The big change between the last couple of months and now is that imports have suddenly surged,” Khullar said.

India’s oil imports are expected to increase by 18 percent in May. Global crude prices hit the $120 per barrel mark on Friday.

The December quarter current account gap stood at $9.7 billion vs $12.2 billion year ago. Khullar had said earlier that he expects the FY 11 current account deficit to be in the range of 2.5 to 2.8 percent.

Investment banker Goldman Sachs had earlier flagged off India’s high current account deficit as a risk to the economy and raised the red flag on it being financed mostly by short term flows.

India’s exports in May rose an annual 56.9 percent to $25.9 billion, while imports for the month rose 54.1 percent to $40.9 billion, Khullar said on Friday, citing provisional data.

India’s trade deficit in May stood at $15 billion.

There are question marks on the sustainability of the strong export figures as most economic indicators indicate a slowdown. Growth in industrial output for April has slowed down and the economy grew at the slowest in five quarters during the March quarter.