Export Accelerate, Pressuring Subbarao to Boost Rates, Cool Inflation

India’s merchandise exports increased at a faster pace in August amid growing demand for the nation’s goods, sustaining pressure for higher interest rates to cool inflation.

Overseas shipments rose 22.5 percent to $16.6 billion from a year earlier, Commerce Secretary Rahul Khullar told reporters in New Delhi today. Exports rose 13.2 percent in July, according to previously reported numbers. Imports totaled $29.7 billion in August and the trade deficit was $13.06 billion, Khullar said.

Reserve Bank of India Governor Duvvuri Subbarao is under pressure to add to this year’s four interest-rate increases to tame inflation in the world’s third-fastest growing major economy. Industrial production expanded 13.8 percent in July from a year earlier, more than twice the pace in June, a government report showed last week.

“The export growth suggests that there would be a case for the central bank to control inflation,” N.R. Bhanumurthy, an economist at the New Delhi-based National Institute of Public Finance and Policy, said before the report.

India’s gross domestic product expanded 8.8 percent last quarter from a year earlier, the most since 2007 and the fastest pace among major economies after China and Brazil. Maruti Suzuki India Ltd., the nation’s biggest carmaker, sold a record 104,791 vehicles last month.

India’s trade deficit for the year to March 31 would be in the "neighborhood" of $135 billion, Khullar said. "The trade deficit is a matter of concern, though it is manageable," he said.

Prime Minister Manmohan Singh’s government is aiming to accelerate India’s growth to 8.5 percent in the current fiscal year ending March 31, from 7.4 percent in the previous year.

Exports expanded 28.7 percent to $85.27 billion in the five months through August, while imports jumped 33.1 percent to $141.89 billion during the period. The trade gap was $56.62 billion, Khullar said.

Merchandise exports account for about a fifth of the nation’s $1.3 trillion economy.

To contact the reporter on this story: Tushar Dhara in New Delhi at tdhara1@bloomberg.net.

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