India revises up trade gap estimate as exports struggle

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Indian imports continued to outpace exports in February as demand remained weak in major exports markets like the United States and Europe, nudging the government to revise up the full-year trade deficit projections on Friday.

A widening trade deficit will likely worsen India's current account deficit and further weaken the rupee.

Merchandise exports grew an annual 4.3 per cent to $24.6 billion in February, while imports grew 20.6 per cent to $39.8 billion, Trade secretary Rahul Khullar said on Friday, citing provisional trade data.

The trade deficit widened to $15.2 billion during the month from $14.8 billion in January.

With exports struggling to maintain the growth rate seen between April and September, Khullar revised up trade deficit projection for the fiscal year ending on March 31 to $175 to $180 billion from an earlier estimate of $160 billion.

"Over the last five months...there has been a very large ballooning of the balance of trade deficit," he said. The trade deficit was $104 billion in the last fiscal year.

Exports reached $267.4 billion between April and February -- bolstered by demand for engineering goods, petroleum products and pharmaceuticals -- compared with the full-year target of $300 billion.

As demand in major export markets remain weak, the full-year figure is expected to be little short of the target.

"You are within striking distance of $300 billion, but you might not actually make it," Khullar said, estimating the total merchandise exports for 2011-12 to be in the range of $292-$298 billion.

Last month Khullar had projected the current account deficit to reach 3.5 per cent of GDP this fiscal year, its worst in at least eight years, as the full-year trade shortfall was seen at $160 billion.

With the government revising up the shortfall figure, the current account deficit is also likely to widen further.

The deterioration in the current account deficit could pile pressure on the rupee, which fell nearly 16 per cent against the U.S. dollar in 2011 before recovering this year, making it more reliant on volatile capital inflows to fund the gap.