Economy First Cut Trade: Oil keeps trade deficit under check

Merchandise trade deficit narrowed to $9.4 billion in December from $10.1 billion a year ago. While exports fell by 3.8% y-o-y, imports also contracted by 4.8% y-o-y, led by a sharp decline in oil imports. With oil prices falling to $62.3/barrel in December 2014 vis-à-vis $110.7/barrel a year ago, oil imports witnessed their sharpest decline (28.6% y-o-y) since 2009. However, falling prices also impacted exports of petroleum products (-21.2% y-o-y), which account for 20% of India’s total merchandise exports. Exports excluding oil, also witnessed muted growth at 0.2% y-o-y in December, reflecting weak global demand conditions. In contrast, domestic demand seems to have picked-up with core or non-oil non gold imports recording a growth of 10% y-o-y after contracting for most of FY13 and FY14. For October-December 2014, trade deficit widened to $39.6 billion from $30.3 billion a year ago, due to higher gold and core imports.