India’s trade deficit is continuing to widen according to latest statistics, due to companies increasing their imports of oil and machinery.
The deficit has increased from US$5bn recorded in July to US$6.8bn in August.


Total deficit for the April-August period is estimated at US$32,502mn, compared to the deficit of US$19m925mn recorded in the previous year.
In August, imports rose 32.6% to US$19.5bn, while exports grew by 18.8% compared to the previous year to US$12.5bn.


Cumulative value of exports for the period April to August was US$59.484bn. This was an increase from a cumulative total of US$50.255bn recorded in 2006.
This compares to a total value of imports for April to August 2007 of US$91.986bn. In 2006, this figure stood at US$70.181bn.


Increasing oil imports are said to be partly to blame for the trade deficit, with such imports in August increasing by 19.52% to a total of US$6.02274bn. Oil imports for the entire April to August period were valued at US$25.901bn, marking an 8.32% increase compared to 2006 figures.


Indian exporters are also losing any competitive advantage they had due to the rupee strengthening at a faster pace that currencies in China, Pakistan, the Philippines and Bangladesh.


These countries are India’s direct competitors in terms of key exports such as textiles, clothing and leather. According to the Confederation of Indian Industry (CII), the rupee has appreciated 11.8% over the last year, compared to the Chinese yuan having appreciated by 3.6%, the Pakistani rupee which has appreciated by 0.3%, the Bangladeshi taka by 3.2% and the Sri Lankan rupee has depreciated by 4.6%.


Similarly South Korea’s and Thailand’s currencies have appreciated by 2.3% and 10.4$ respectively. This is having a damaging effect on India’s exports in sectors such as steel and auto components.


Indian exports of chemicals and petrochemicals are also suffering due to the slower rate of currency appreciation in China, South Korea and Thailand.


CII’s president, Sunil Mittal, recommends a cut in interest rates to improve India’s competitiveness: “Reducing the interest rates will not only help Indian industry including exporters to reduce their costs, but will also reduce the interest rate arbitrage opportunities and thus will help in moderating inflows of US dollars. It is time that Reserve bank of India and the government take measures that will help arrest further appreciation of the rupee and certain damage control measures could be taken to reduce the impact of the dual problem of rupee appreciation and high interest rates on the bottom lines of Indian industry,” he argues via an official statement from CII.