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India’s trade gap narrowed to a five month low in September, driven by slower growth in imports even as exports contracted compared to a year ago.

The gap between exports and imports stood at $13.98 billion, compared with $8.9 billion in the same month last year, according to a release from the government’s Press Information Bureau. The trade gap has narrowed from a five-year high of $17.4 billion in August.

Import Growth Slows

Imports rose 10.45 percent over last year in dollar terms to $41.9 billion, led by higher inbound shipments of electronic goods, gold, crude oil and coal. Yet, this was the slowest pace of the growth in the last five months.

Imports have surged this year driven not just by higher oil prices but also increased shipments of consumer goods like smartphones. The government has announced two rounds of customs duty hikes to try and curb non-essential imports. Economists, however, do not expect those measures to have much impact. Non-oil and non-gold import growth slowed down to 1.22 percent.

Imports between April-September 2018 have risen by 16.16 percent in dollar terms over last year, said the government. In the same period last year, imports stood at $ 219.3 billion.

Import Highlights:

• Crude oil imports went up 33.6 percent to $10.9 billion, slightly lower than last month.
• Iron and steel imports rose 10.8 percent to $1.4 billion.
• Gold imports grew 51.4 percent, slower than last month, to $5.69 billion.
• Pearls and precious stone imports fell 16 percent to $2.6 billion.
• Electronic goods imports rose 11.4 percent to $5.7 billion.

Exports See De-growth

Exports fell 2.5 percent in dollar terms to $27.95 billion. The fall in exports is a “temporary out of trend phenomenon” due to a spike in exports in the same month last year, said the government.

• Exports of petroleum products rose 26.76 percent to $4.4 billion.
• Exports of drugs and pharmaceuticals went up 3.8 percent to $1.6 billion.
• Engineering goods exports fell 4 percent to $6.99 billion.
• Readymade garment exports declined 33 percent to $1.1 billion.
• Gems and jewellery exports fell 21.7 percent to $3.7 billion.

Relief For Rupee?

The leaner trade shortfall could come as a relief for Prime Minister Narendra Modi’s as the recent import curbs announced by his administration have failed to stem the rout in the rupee. Economists fear that the widening trade deficit could push the current account deficit to between 2.5-3 percent of GDP this year. Meanwhile, FPI’s have withdrawn more than $12 billion so far this fiscal year, leading to concerns about financing the current account deficit.

Today’s data may not yet reflect a change in trend, said Aditi Nayar, economist at ICRA. Nayar points out that the absolute widening in the deficit levels between September last year and this year is in line with the trend seen between April and August. “This underscores that the correction in September 2018 relative to the size of the trade deficit in the previous three months, has been driven by seasonal factors, and is therefore likely to offer only temporary relief,” Nayar said.