The trade balance was in a $10.8 billion deficit in June, a slight deterioration versus the $10.4 billion shortfall recorded in May but almost $1 billion better off than in the same month a year ago.
The increase in the red ink was due to stronger imports for which an annual decline of 13.4 percent was more than 3 percentage points less than recorded in May. This potentially points to a pick-up in domestic demand although strength in food may be just a reflection of worries about possible shortages at home should the monsoon season disappoint. Exports were 15.8 percent weaker on the year after a 20.2 percent decline in mid-quarter, but still worryingly soft. Annual export growth has now been below zero for every month since last December.
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transit trade, transactions in silver (other than current coins) and in notes and coins not yet in circulation or withdrawn from circulation are included.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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