India's trade deficit narrowed to a 2-year low

It now stands at USD10.3bn.

According to Nomura, the trade deficit narrowed sharply to a two-year low of USD10.3bn in March from USD14.9bn in February, better than expected (Nomura: USD11.9bn). 

Here's more:

While the improvement is partly seasonal as exports tend to rise at the end of the financial year (the average improvement in the trade deficit between February and March is USD2.8bn over the last three years), it also reflects a combination of higher exports and weak imports.

Exports rose 7% y-o-y in March from 4.2% in February. On a three-month seasonally adjusted annualised basis, we estimate that exports grew at 19% from 7.4%, suggesting improving sequential external demand momentum.

Import growth contracted by 2.9% y-o-y after rising 2.6% in February due to lower gold imports, weaker oil imports and the continued contraction in non-oil imports; the latter reflecting weak domestic demand.

On a seasonally adjusted basis, we estimate that the trade deficit narrowed to USD15.7bn in March from USD16.7bn in February, indicating that both seasonal and non-seasonal factors are at play.

While part of the seasonal improvement in the March trade deficit will reverse in April, the recent fall in oil and gold prices can lead to a saving of 1% of GDP on the current account deficit on an annualised basis, if the current price fall sustains.

Hence, the recent combination of improving external demand, low oil/gold prices and weak domestic demand, will improve the outlook for India‟s strained current account deficit.

With today's trade data, the Q1 (Jan-Mar) current account deficit is likely to be 4-4.5% of GDP versus 6.7% in Q4.