The merchandise trade deficit narrowed to a 17-month low of $6.85 billion in February, down from $8.32 billion at the start of the year and $8.31 billion in the same period of 2014.
The improvement was mainly attributable to weakness in oil imports which were off more than 55 percent from a month earlier due to the slump in prices. Total imports were 15.7 percent below their year-ago level. However, exports were disappointing; declining 15.0 percent on the year after an 11.2 percent annual drop in January.
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transit trade, transactions in silver (other than current coins) and in notes and coins not yet in circulation or withdrawn from circulation are included.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.
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