India’s trade deficit widens in May; trend likely to continue in coming months

In May, India recorded trade deficit of USD 6.3 billion, widened from April’s deficit of USD 4.8 billion. A sharp increase in core imports, which followed two straight months of subdued performance, is attributed to the widening of trade deficit.

Exports bolstered further in May. It rose for the second consecutive month in sequential terms. Non-oil exports were up 1 percent year-on-year, entering positive territory after a period of 16 months. Engineering goods and gems & jewellery mainly drove the rise in exports. Furthermore, exports continued to be strong in terms of volumes as well. However, certain weakness is likely to be seen in exports in the near-term as new export orders in May manufacturing PMI showed a reading of below 50.

Meanwhile, the country registered a rise in imports throughout the segments of gold, oil and non-oil-non-gold in May. Growth was seen in electric machinery, transport equipment and electronic goods. This shows that urban consumption demand is strong and that there is certain resilience in capex, said HSBC in a research report.

In the first quarter of 2016, India recorded current account surplus due to low trade deficits. But, in the coming months, trade deficit is likely to widen as oil prices have began increasing, according to HSBC. However, there have been solid inflows of FDI, while the pipeline implies that it might continue to fund the CAD non-challenging, said HSBC.