• OUTLOOK ARENA
  • VIEWS ON NEWS
  • DECEMBER 2, 1999

Trade deficit data portrays mixed picture (Apr-Oct '99)

According to the trade data released by the commerce ministry, there has been a marginal decrease (US$ 30 m) in the trade deficit during the seven months ended 31st October 1999. While exports surged 10% during this period, import growth has lagged at 7.5%.

(US$ bn)Oct-99 YoY change Apr - Oct 99 YoY change
Exports 3.2 22.0% 20.8 10.0%
Imports 3.9 15.4% 26.6 7.5%
Trade Deficit 0.7 -5.1% 5.8 -0.5%

Although the picture may not look all that rosy, trade figures for the month of October do bring some cheer. During this month, export growth surged 22% while imports, too, grew by a stealthy 15%. The decline in the trade deficit was sharper for the month at 5%.

The significance of a decline in the trade deficit emanates from the fact that there has actually been a sharp rise in the price of crude oil, a major component of Indian imports. Infact, oil imports have grown by over 52% during the seven-month period to US$ 5.2 bn. The oil import bill for the entire year has been estimated at US$ 9 bn.

The export sector seems to be gaining momentum even as imports log in lower rates of growth. Although this is beneficial for the trade deficit, it may not be so for the economy. This is because to pursue economic development and build competitive advantage India needs to modernise its plants, improve infrastructure and step up industrial capacity to cater to domestic and international needs. Achievement of these goals requires the presence of a large and vibrant capital goods industry that is both price and technologically competitive. Needless to say, a majority of Indian companies lack on both counts. Therefore the need to import capital goods, to pursue development in the domestic economy.

The newspaper reports are silent on the issue of imports of capital goods. Some economists have stated that the slower growth of imports during the period under consideration is due to a decline in the import of capital goods. It has also been pointed out that there exists an output gap (excess capacity) in the Indian economy and therefore this need not be a cause of immediate concern. However, as building up capacity is a time-consuming process, economic growth in the future may be constrained if the economy sustains the present momentum and investment activity continues to lag. (Note that the figures pertain to the trade deficit. They exclude import and export of invisibles including software).

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst)
103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407