This financial year, India’s trade deficit is likely to contract to about a fifth of the deficit in 2011-12, owing to a fall in gold imports.
Ajay Sahai, director general, Federation of Indian Export Organisations (FIEO), said, “Much of the gold was imported for creating assets in the last financial year. The stock market and the real estate sector were not doing well. Now, with the markets expected to perform better, gold imports are likely to decline at least 50 per cent by the end of the year.”
In 2011-12, 969 tonnes of gold, valued at about $54 billion, were imported. Gold imports are estimated to decline by $25-30 billion in the current financial year. “This fall in gold imports would help contain trade deficit at $150 billion in the current financial year,” Sahai said.
In the last financial year, imports of gold and petroleum had led to the trade deficit ballooning to a record $185 billion, or about 10 per cent of the gross domestic product.
With gold prices touching record levels in recent months and the government raising duties on importing the commodity, gold and silver imports fell about 46 per cent to $2.6 billion in August. Data with the Ministry of Commerce and Industry show these imports dropped 62.5 per cent to $16 billion in the first five months of the current financial year.
“While the import of silver may increase for industrial purposes, owing to the economic revival, gold imports have already dropped 38 per cent in the April-August period. The import of coal has also been under control. However, much would depend on the allocation of coal available domestically for power generation,” Sahai said.
In August, coal imports rose to $1.7 billion, compared with $1.5 billion in the corresponding month last year.
Declining imports this year may lead to containing trade deficit in the current financial year. While this deficit widened marginally to $15.7 billion in August, for the April-August period, trade deficit fell to $71.1 billion, against $76.2 billion in the year-ago period. However, the contraction in the trade deficit came amid a fall in both exports and imports.
In the previous two financial years, the trade deficit had risen year-on-year, which shows a steep decline in demand abroad. The high trade deficit had, in turn, raised India’s current account deficit, which includes net trade in services and net investment income, to a record 4.2 per cent of the gross domestic product.