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article imageIndia's exports fall in February but trade gap shrinks

By AFP     Mar 11, 2014 in Business

India's merchandise exports fell for the first time in eight months in February, data showed on Tuesday, dampening hopes of an export-led recovery for the flagging economy ahead of national elections.

Exports contracted 3.67 percent last month from a year earlier to $25.68 billion, compared with 3.79 percent growth in January, data released by the commerce ministry showed.

Despite the export slump and in rare good news for the government, the trade gap narrowed again to $8.13 billion in February from a year earlier and down from $9.91 billion in January, the data showed.

The narrowing eases pressure on the current account deficit -- the widest trade measure embracing goods, services and investment income -- that had last year been called unsustainable.

A drop in gold imports was the main reason for the trade gap narrowing, analysts said. Overall, imports fell 17.09 percent from a year earlier while non-oil imports that include gold dropped 24.5 percent, data showed.

"It is the gold import curbs that have helped (narrow the deficit)," said Madan Sabnavis, chief economist at Care Ratings.

The government hiked import duties on gold and imposed other restrictions on gold sales last year in a bid to control the current account deficit, which had ballooned to a record 4.8 percent of GDP.

The ballooning had triggered market turmoil and prompted analysts to warn India could lose its prized investment-grade credit rating.

Following the government measures, the current account deficit narrowed to a four-year-low of $4.2 billion in the three months to December from a year earlier.

The narrowing eases pressure on the rupee, which has strengthened against the US dollar since slumping to a record low in August last year.

Analysts however remain concerned about the health of India's economy, which grew a sluggish 4.7 percent in the last quarter of 2013, in unwelcome news for the ruling Congress party ahead of general elections next month.

"(The) worry is that the narrowing trade gap is not driven by export buoyancy," Sabnavis of Care Ratings warned.

"A deeper contraction in exports is possible and a drop in non-oil imports suggests the economy is slowing still."

Growth has crumbled from nearly double-digit expansion just three years ago, a level economists say India must reach again if it is to generate jobs for its vast young population.

Most forecasts suggest growth will remain below 6 percent in 2014-15 since major policy decisions will take place only after a new national government takes office following elections that end in May.

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