It may not be a surplus, but it’s some positive economic news for India: the trade deficit has narrowed again.

Data published by the Ministry of Commerce and Industry show that the trade gap declined to two-year low of $10.3bn in March – compare that with the deficit of $14.9bn in February and $13.5bn in March 2012.

Exports were up 7 per cent year-on-year to $30.8bn, while imports were valued at $41.2bn in March, down 2.9 per cent in the year.

This is the chart from Barclays:

* Indicates data only through February 2013; Source: Bloomberg, CEIC, Barclays Research

Falling commodity prices have helped reduce India’s import bill, with oil imports of $13.3bn in the month of March, down 16.6 per cent year-on-year. Gold imports have also fallen due to the big price fall in the last few days and import duty hikes designed to discourage demand.

Less positive is the weakening domestic demand, which sent non-oil imports to $27.8bn in March, up 5.4 per cent year-on-year.

Exports may have improved, but it is worth noting the seasonal effect – exports always improve towards the end of the financial year. Over the past three years, India’s trade deficit has improved by an average $2.8bn between February and March.

Sonal Varma, an analyst at Nomura, commented:

While part of the seasonal improvement in the March trade deficit will reverse in April, the recent fall in oil and gold prices can lead to a saving of 1% of GDP on the current account deficit on an annualised basis, if the current price fall sustains.

Related reading:
[brief] India trade gap narrows, beyondbrics
What does the big drop in the gold price mean for India? beyondbrics
[brief] India inflation eases, beyondbrics
India’s current account gap goes from bad to worse, beyondbrics

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