Indian trade deficit widens as export growth decelerates

Trade deficit for February widened to US$15.2bn or 9.7% of GDP.

Morgan Stanley noted that according to trade data released by the Ministry of Commerce, seasonally adjusted exports fell by 1% MoM in February 2012 as compared with a growth of 5% MoM in January 2012. On a YoY basis, export growth (in dollar terms) slid to 4.3% YoY in February compared with growth of 10.1% YoY in January 2012.

Import growth steady: On a YoY basis, import growth (in dollar terms) remained relatively steady at 20.6% YoY in February 2012 compared with 20.3% YoY in the previous month.

“While exports have been trending in line with our expectations, import growth remained due in part to higher oil prices. The trade deficit tends to improve seasonally over the QE March. However, given the trend in trade deficit for January and February, we believe that the current account deficit will remain high in the March 2012 quarter in the 2.5-3% of GDP range. We believe the government needs to reduce the support to domestic consumption by cutting expenditure growth meaningfully. Loose fiscal policy and low real rates have been at the core of persistent high trade and current account deficit,” the brokerage said in a research noted dated March 12, 2012.