The red ink on merchandise trade in August was little changed on the month at $7.67 billion but some 38 percent smaller than a year ago. Over the first five months of the fiscal year the deficit stands at $34.67 billion or nearly 41 percent smaller than over the same period in FY2015/16.
Exports were down 0.3 percent versus August 2015 despite a 1.8 percent increase in non-petroleum items. This was their second consecutive decline after expanding for the first time in nineteen months in June. However, imports fell some 14.1 percent as weak prices contributed to another sizeable drop (8.5 percent) in purchases of oil. Non-oil imports were 15.7 percent lower.
The merchandise trade balance measures the difference between imports and exports of goods. The level of the international trade balance, as well as changes in exports and imports, indicate trends in foreign trade and can offer a guide to an economy's competitiveness. Alongside the merchandise data, exports and imports of services are also provided. The statistics, which are not seasonally adjusted, are reported in both local currency and U.S. dollars, the latter being the main market focus.
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.