India’s export growth has legs, but high oil bill keeps deficit up

The latest foreign trade figures for India holds both good news and bad news.

The good news is that the export-growth that has been the most significant aspect of the numbers since January this year has held up in September too. The bad news is that despite that, the higher price of oil is creating an uncomfortably high trade deficit.

Exports since January 2011 have been growing at 40-50% every month (compared to the same month of 2010). In September too, they were up 36.4%, at $24.8 billion. June had seen a total export of $29.2 billion – a record.

While posting 40%-plus growth was easy during the first half of the current year (due to a low base), it is becoming increasingly difficult as the growth has now to be calculated over the relatively strong numbers of the second half of 2010.

For most of the recessionary months, India could export only $13-18 billion worth of goods.

India has a target of reaching $500 billion in exports by 2013-14, or roughly $41.7 billion per month.

The target is likely to be easily met if India maintains the current trend.

For example, thanks to the extremely strong export numbers this year, the first six months of the current financial year (April to September) saw a total export of $160 billion ($26.7 billion per month), up by 32.4%.

Meanwhile, a not-so-happy story is unfolding in the deficit arena, primarily due to high oil prices.

India, which imports 80% of the oil it needs, spends around $10 billion a month on importing crude, a small part of which is re-exported after refining.

The oil import bill for the first six months of this year has been $70.3 billion. In contrast, India’s imports of non-oil goods during the same period was $163.1 billion (lower than its total exports).

As a result, India faced a trade deficit (short fall) of $73.4 billion during the first six months, nearly all of which could be accounted for by the oil bill. (This deficit is met by export of services such as BPO and IT.)

India’s oil bill during the first six months was up 42.4% while non-oil imports were up only 28.5%.