IN: Merchandise Trade Balance

Fri Feb 13 06:00:00 CST 2015

Actual Previous
Balance $-8.32B $-9.3B
Exports Y/Y -11.2% -3.8%
Imports Y/Y -11.4% -4.8%

The merchandise trade balance was in the red to the tune of $8.32 billion in January, down from $9.43 billion in December and also short of the $9.45 billion posted a year ago.

Exports and imports were both soft with the former falling 11.2 percent on the year on the back of declines in cotton yarn, chemicals, pharmaceuticals and jewellery. Overseas sales of tea, coffee, rice and tobacco also shrank. Meantime, imports slid a slightly steeper 11.4 percent, despite an 8.13 percent rise in gold purchases, as oil slumped fully 36 percent.

The narrowing in the trade gap should be mildly supportive of the rupee although the weakness of exports is not good news and will likely fuel concerns about the accuracy of the latest GDP figures.

The foreign trade data relate to total sea, air and land trade and on private and government accounts. Exports are on f.o.b. basis and imports are on c.i.f. basis. Exports include re-exports of foreign merchandise previously imported to India and imports relate to foreign merchandise whether intended for home consumption, bonding or re-exportation. Direct transit trade, transshipment trade, passengers baggage, ship's stores, defense goods and transactions in treasure i.e. gold and current coins and notes, diplomatic goods and "proscribed substances" under Atomic Energy Act, 1962, are excluded from the trade data, while indirect transit trade, transactions in silver (other than current coins) and in notes and coins not yet in circulation or withdrawn from circulation are included.

Changes in the level of imports and exports, along with the difference between the two (the trade balance) are a valuable gauge of economic trends here and abroad. While these trade figures can directly impact all financial markets, they primarily affect currency values in foreign exchange markets.

Imports indicate demand for foreign goods and services in India. Exports show the demand for Indian goods in countries overseas. The rupee can be particularly sensitive to changes in the trade deficit run by India, since the trade imbalance creates greater demand for foreign currencies. The bond market is also sensitive to the risk of importing inflation. Data are reported in US dollars and Indian rupees.