Indian monthly trade deficit widened to US$11.1b in July

Export growth accelerated in YoY terms, although flat MoM: According to provisional trade data released by the Ministry of Commerce, seasonally adjusted exports rose 0.5% MoM in July 2011, after increasing 4.4%MoM in the previous month.

On a YoY basis, export growth (in dollar terms) remained strong at 81.8% YoY in July compared with 46.4% YoY in June 2011, largely due to base effect (July 2010 exports were down 19.2% MoM SA). As per reports, engineering, petroleum products, and gems and jewellery exports have registered healthy growth.

Import growth accelerates: According to provisional data, seasonally adjusted imports rose 2.2% MoM in July 2011, after falling 4.5% MoM in the previous month. On a YoY basis, imports (in dollar terms) were up 51% YoY in July 2011 (provisional) compared with 42.5% YoY the previous month.

The non-oil import growth (in dollar terms, provisional) remained strong at 34.6% YoY in July (vs. 47.7% YoY in June 2011). The oil imports growth accelerated to 49.4% YoY in July (vs. 30% in the previous month). We think the oil import data had been understated due to data issues. As seen in the exhibit below, there is a divergence between growth in oil imports and oil prices (Brent) data over the past six months.

Monthly trade deficit widens in July, trailing three months remained steady: Trade deficit widened to US$11.1 billion (7.3% of GDP annualized) in July from US$7.7 billion (5.1% of GDP annualized) in June 2011. Monthly number tends to be volatile; hence, we believe three-month trailing sum is a more appropriate indicator to track. On a three-month trailing basis, the trade deficit remained largely steady at 7.4% of GDP, annualized in July, from 7% of GDP in June 2011.

Trade deficit to stay in the range of 7-8% of GDP: In line with our view that growth will slow in the second half of C2011, we think that non-oil import growth will moderate. However, with the ongoing weakness in the developed world, we are less optimistic on exports maintaining their current momentum, and thus we see trade deficit being maintained at moderate levels of 7-8% of GDP.