India Trade Gap Narrows as Import Plunge Exceeds Export Drop

India’s trade deficit narrowed as a plunge in imports offset the largest drop in exports since 2009.

The shortfall shrank to $10.5 billion in September from $12.5 billion in August, according to a Commerce Ministry statement on Thursday and previously reported data. Exports fell 24 percent, the steepest fall since July 2009, and imports dropped 25 percent, the most since September 2009.

A rebound in exports is crucial to hold the current-account deficit within sustainable levels, the central bank said in August. It forecasts that the broadest measure of trade will be contained below 1.5 percent of gross domestic product this year through March 31.

“Exports continue to remain a concern and that concern is unlikely to abate particularly with global demand conditions getting weaker,” said Shubhada Rao, chief economist at Mumbai-based Yes Bank Ltd. “But largely, this is a reflection of what’s going on everywhere in the world.”

The drop in imports was led by a 55 percent plunge in oil and 46 percent fall in gold, while crude exports decreased 60 percent and engineering goods dropped 23 percent. The rupee erased gains in the offshore market after the data, with the one-month non-deliverable contract falling to 65.14 a dollar from 65.01.

Exports should recover in October, following the Reserve Bank of India’s interest rate reductions and as indicated by the strongest factory output growth in almost three years this August, according to the Federation of Indian Export Organisations.

“Generally there is two-three months lead time between manufacturing and exports,” S.C. Ralhan, president of the group, said in a statement after the data.

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