Trade Account

During Jul-Nov FY09, strong growth in imports, mainly due to higher import
prices, outpaced the otherwise substantial improvement in export growth causing
the trade deficit for the period to widen by US$ 1.4 billion compared to the same
period last year. Interestingly, this rise in the deficit accrued entirely during Q1-
FY09; while still large, the monthly deficit saw a YoY decline in each of the next
two months.
The fact that (1) a large share of the overall import increase was contributed by
price impact, while the share of quantum impact in the total import increase was
negative and (2) growth of non-food & non-oil imports recorded a sharp
deceleration during Jul-Nov FY09, both point toward easing of demand pressures
during Jul-Nov FY09. The combined impact of lower commodity prices and
easing of domestic demand pressure are likely to reduce the trade deficit going
forward.