Improvement in trade deficit

India’s trade deficit shrank in January, helped by a sharp decline in imports of precious metals, improving the country’s current account outlook.

The trade deficit was $9.92 billion last month compared with $10.14 billion in December and $18.9 billion in January 2013, according to data released on Tuesday.

Merchandise exports rose 3.79% year-on-year to $26.75 billion, compared with a 3.5% increase in December. Imports fell 18.07% year-on-year to $36.57 billion, led by a 77% drop in gold and silver imports.

India expects to keep the current account deficit under $50 billion in the fiscal year to March. The shortfall was a record $87.8 billion, or 4.8% of gross domestic product (GDP), in the previous 12-month period, which had precipitated a record fall in the value of the rupee against the dollar last summer.

The rupee touched a record low of Rs.68.85 per dollar in August. It has since risen, closing at 62.22 per dollar on Tuesday.

The narrowing of the trade deficit makes the current account deficit target appear achievable, said commerce ministry secretary Rajeev Kher. The current account deficit is the sum of the balance of trade in goods and balance of invisibles such as net receipts from services and remittances.

In the 10 months to January, the trade deficit fell to $120 billion, lower than the $167.79 billion in the year-ago period.

Imports of gold and silver in the 10 months were 38% below the $47 billion in the year-ago period, mainly due to restrictions, including a higher import duty, on the imports of the precious metals.