New Delhi: India's trade deficit hit a five-month high in March as merchandise exports fell for a second straight month, making it tougher for policymakers to lift curbs on gold imports that have helped to narrow the country's current account gap.
Asia's third-largest economy, which is struggling through its longest period of sub-5 per cent economic growth since the 1980s, is seen vulnerable to any shift in capital flows.
Among the "Fragile Five" emerging economies, India suffered from massive capital outflows last year, in part on concerns over a bloated current account deficit, after the United States Federal Reserve signalled a trimming down of its monetary stimulus.
Heavy outflows sent the rupee to a record low in August, prompting Indian authorities to build up foreign-currency reserves and clamp down on gold imports.
March trade gap widens
India's trade gap in March widened to $10.51 billion, its highest since October 2013, data from the Ministry of Commerce and Industry showed on Friday. Overseas sales of Indian goods fell 3.15 per cent from a year earlier to $29.58 billion in March.
Merchandise exports for the 2013/14 fiscal year, however, grew 3.98 per cent on year to $312.36 billion.
Together with a 8.11 per cent decline in annual imports, that helped sharply narrow the country's full-year trade shortfall to $138.59 billion from $190.34 billion a year ago.
"Extreme caution needs to be taken towards any liberalisation of gold imports because the risks of gold imports rising are very, very active," according to Saugata Bhattacharya, chief economist at Axis Bank.
He expects the current account deficit to be 2.1-2.2 per cent of GDP in the fiscal year that began on April 1.
As a result of curbs on gold, imports of the metal have almost halved, scripting a dramatic improvement in the current account deficit that is estimated to have narrowed to two per cent of gross domestic product last fiscal year compared with a record high 4.8 per cent a year ago.