India Trade Deficit Narrowed in September

HONG KONG - India's trade deficit dropped to its lowest level since early 2011, data released Wednesday showed, providing a rare piece of good news from an economy that has been weighed down by inadequate infrastructure, a gaping current account deficit and a currency that has plummeted in recent months.

India's trade deficit contracted to $6.7 billion in September, from $10.9 billion in August, the Ministry of Commerce and Industry said, as exports jumped 11.2 percent from a year earlier. The export number represented the third consecutive month of double-digit expansion, as demand from overseas was buoyed by a weaker rupee, which has helped make Indian goods cheaper for purchasers outside the country.

At the same time, imports plummeted 18.1 percent as a string of government measures aimed at curbing demand for imports like gold took effect.

“The government has taken conscious steps to curtail imports of nonessential commodities, essentially precious metals. That is working out as the government intended,” India's top trade civil servant, S.R. Rao, told Reuters.

Heavily dependent on imports of oil, gold and other items, the Indian economy has long run a trade deficit - a phenomenon it was able to support as long as foreign investors, lured by years of growth and the market potential of 1.2 billion consumers, poured into the country.

But the picture has changed dramatically in recent years. Investors have grown increasingly frustrated with the government's inability to tackle age-old problems such as creaking infrastructure and stifling red tape. Decision-making has been complicated further by elections scheduled for next year. And growth has dropped from more than 9 percent in 2010 to less than 5 percent this year.

This, combined with a widespread exodus of foreign cash from emerging markets around the world, has dragged down the rupee sharply in recent months, prompting several government steps to prop up the currency and avert a wider crisis.

The measures, and a degree of confidence instilled by the new governor of the Indian central bank, who took office last month, have helped stabilize the rupee in recent weeks.

On Wednesday, the rupee was trading at 61.83 per U.S. dollar - much firmer than at its low point of nearly 69 per dollar, reached in late August. But it remains far weaker than a year ago, for example, when $1 bought only 53 rupees.

Although this has helped exports, analysts cautioned on Thursday that the trade deficit could widen again in coming months as demand for gold picks up in advance of a key festival season, which begins this month.

“The September data has come as a big positive surprise. However, we do not expect such a trend to continue, given that seasonally the ongoing quarter tends to witness a higher trade deficit,” Upasna Bhardwaj, an economist at ING Vysya Bank in Mumbai, told Reuters.

Also reflecting the drag on India's economy, the Asian Development Bank last week slashed its growth forecast for the country to 4.7 percent for this year, from the 6 percent it had forecast in April, before the sell-off in emerging markets sent the rupee skidding lower. For next year, the ADB now forecasts growth of 5.7 percent, rather than the 6.5 percent it had projected in April.