India's Trade Deficit Hits Record High Despite Rise in Exports

May 1, 2012
Surging deficit is more bad news for Asia's third-largest economy after Standard & Poor's downgraded India's credit outlook last week to negative.

India's exports grew 21% in the last financial year to beat the government's target, data showed Tuesday, but the country's trade deficit surged to a record high.

India's merchandise exports crossed the government's $300 million goal to reach $303.7 billion in the financial year ended March 2012, according to Commerce Ministry data.

But imports soared by 32% to $489 billion, pushing India's trade deficit to an all-time high of $185 billion.

The trade deficit was more bad news for Asia's third-largest economy after global ratings giant Standard & Poor's downgraded India's credit outlook last week to negative, saying a slowing economy and swelling fiscal deficit was putting the country's prized investment-grade rating at risk.

Energy-hungry India's huge energy purchases accounted for a large chunk of the import bill, with rising fuel prices pushing up the bill. Oil imports went up by 47% to $156 billion in 2011-12, with the country sourcing 80% of its crude abroad.

"The growing trade deficit, which is the highest in the history of India's trade, is a cause for concern," said Rafeeque Ahmed, president of the Federation of Indian Export Organization.

The trade deficit has raised worries about India's current account deficit -- the gap in trade as well as capital flows -- which stands at nearly 4% of GDP, the highest on record.

The country is no longer able to depend on the combination of revenues from its flagship outsourcing sector, remittances from Indians working abroad and foreign capital inflows to cover its ballooning imports.

The weak Indian currency, which has fallen by about 20% against the U.S. dollar in the last 12 months, is making it even harder to attract foreign capital.

Also, while India's exports grew on an annual basis, overseas sales fell 5.7% to $29 billion in March from a year earlier as demand slowed in India's major European and U.S. markets.

It was the first monthly export fall since late 2009 when India was feeling the effects of the last global financial crunch.

Copyright Agence France-Presse, 2012

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