India trade deficit narrowed to USD13.5 in May

Commodity prices fell from October last year and t was not until April and May that non-oil imports fell sharply.

According to DBS, the trade deficit narrowed to USD 13.5bn (sa) in May, a big improvement from an average deficit of USD18.5bn(sa) registered in Jan-Feb. That works to an annualized 3% of GDP improvement, significant by any measure.

To be sure, some of the improvement in the deficit relates to lower oil and commodity prices. With net oil imports at 4.5% of GDP, and given the 20% drop in crude oil prices (May vs Jan-Feb), about 1% of GDP worth reduction in the deficit may be explained by the move in oil prices alone. Non-oil imports in May are down by 12% (sa) from the Jan/Feb averages, and down by 16% from May last year, DBS added.

Improving terms-of-trade have helped narrow the non-oil trade deficit and we reckon about 1% of GDP improvement in the non-oil deficit may owe to price effects. Commodity prices fell from October last year and it was not until April and May that non-oil imports fell sharply, DBS said.