NEW DELHI--Data released by the Indian government on Monday gave mixed signals on the economy--retail inflation indicated an encouraging downtrend, but trade numbers highlighted continuing risks.
India's trade deficit in April rose more than 70% from March to $17.8 billion.
The surprisingly large increase will stoke worries of continued pressure on the country's current-account deficit that widened to a record high in the last quarter of 2012.
The large current-account gap increases the economy's vulnerability to economic shocks in other parts of the world and hurts the local currency. So far, India has managed to attract enough foreign investments in its capital markets to make up for the shortfall.
But economists say these investors could pull out their money and take shelter in safer havens if they see any risks to their investments. India has been trying to narrow the deficit, in part by discouraging the consumption of gold which is India's second- biggest imported commodity by value.
The government has taken steps, such as imposing a higher import tax, to discourage gold consumption by making it costlier in the local market.
These had shown some results earlier this year, but proved insufficient in April when demand surged after the price of gold fell to a two-year low.
Data showed India's total imports in April rose 10.9% from a year earlier to $41.95 billion, eclipsing a small 1.6% increase in merchandise exports to $24.16 billion.
Gold and silver accounted for $7.5 billion in the total imports, compared with $3.1 billion a year earlier. Nomura economists Sonal Varma and Aman Mohunta said gold demand rose as consumers advanced their purchases to take advantage of the lower prices.
This should fade over the coming quarters, but before that happens, there may be some more pain in store for the economy, they said in a note. Nomura said people could buy more gold because of the lower prices now and that this could further worsen the trade deficit in May.
Meanwhile, the country's central bank Monday formalized a step announced earlier this month to reduce gold imports. It barred banks from importing gold under a plan where the importers could pay within 180 days for the shipments.
While the trade deficit stoked concerns, inflation data brought some cheer.
Consumer inflation eased for the second straight month to 9.39% in April from 10.39% in March, raising hopes that price pressures at the retail level may finally be easing.
India's consumer inflation remained high despite a downtrend in wholesale inflation, constraining the central bank from lowering interest rates aggressively despite mounting pressure to make corporate borrowings cheaper and help stimulate the economy which growing at its weakest pace in a decade. The economy is projected to have grown just 5.0% in the fiscal year ended March 31.
Rohini Malkani, an economist at Citigroup, said consumer inflation is expected to ease to 7.5%-8.0% in the coming months from an average 10.2% in the year ended on March 31. According to the government's weather department, India is expected to get normal rains this year unlike last year when they were below normal.
Economists expect this could help boost farm output and bring down food prices. She said the downtrend in inflation would allow the central bank to cut interest rates by half a percentage point by the end of March to help boost economic growth.
On May 3, the Reserve Bank of India cut its lending rate by a quarter percentage point for the third time in 2013, but warned it had little room for further reductions because of high inflation and the wide current-account deficit.
Markets are now watching for data on wholesale inflation for April, due Tuesday. A poll of 11 economists suggests wholesale inflation would be 5.38% in April, compared with 5.96% in March. The central bank wants to bring it down to less than 5%.
nasdaq.com
India's trade deficit in April rose more than 70% from March to $17.8 billion.
The surprisingly large increase will stoke worries of continued pressure on the country's current-account deficit that widened to a record high in the last quarter of 2012.
The large current-account gap increases the economy's vulnerability to economic shocks in other parts of the world and hurts the local currency. So far, India has managed to attract enough foreign investments in its capital markets to make up for the shortfall.
But economists say these investors could pull out their money and take shelter in safer havens if they see any risks to their investments. India has been trying to narrow the deficit, in part by discouraging the consumption of gold which is India's second- biggest imported commodity by value.
The government has taken steps, such as imposing a higher import tax, to discourage gold consumption by making it costlier in the local market.
These had shown some results earlier this year, but proved insufficient in April when demand surged after the price of gold fell to a two-year low.
Data showed India's total imports in April rose 10.9% from a year earlier to $41.95 billion, eclipsing a small 1.6% increase in merchandise exports to $24.16 billion.
Gold and silver accounted for $7.5 billion in the total imports, compared with $3.1 billion a year earlier. Nomura economists Sonal Varma and Aman Mohunta said gold demand rose as consumers advanced their purchases to take advantage of the lower prices.
This should fade over the coming quarters, but before that happens, there may be some more pain in store for the economy, they said in a note. Nomura said people could buy more gold because of the lower prices now and that this could further worsen the trade deficit in May.
Meanwhile, the country's central bank Monday formalized a step announced earlier this month to reduce gold imports. It barred banks from importing gold under a plan where the importers could pay within 180 days for the shipments.
While the trade deficit stoked concerns, inflation data brought some cheer.
Consumer inflation eased for the second straight month to 9.39% in April from 10.39% in March, raising hopes that price pressures at the retail level may finally be easing.
India's consumer inflation remained high despite a downtrend in wholesale inflation, constraining the central bank from lowering interest rates aggressively despite mounting pressure to make corporate borrowings cheaper and help stimulate the economy which growing at its weakest pace in a decade. The economy is projected to have grown just 5.0% in the fiscal year ended March 31.
Rohini Malkani, an economist at Citigroup, said consumer inflation is expected to ease to 7.5%-8.0% in the coming months from an average 10.2% in the year ended on March 31. According to the government's weather department, India is expected to get normal rains this year unlike last year when they were below normal.
Economists expect this could help boost farm output and bring down food prices. She said the downtrend in inflation would allow the central bank to cut interest rates by half a percentage point by the end of March to help boost economic growth.
On May 3, the Reserve Bank of India cut its lending rate by a quarter percentage point for the third time in 2013, but warned it had little room for further reductions because of high inflation and the wide current-account deficit.
Markets are now watching for data on wholesale inflation for April, due Tuesday. A poll of 11 economists suggests wholesale inflation would be 5.38% in April, compared with 5.96% in March. The central bank wants to bring it down to less than 5%.
nasdaq.com
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