India's trade deficit narrowed to a 10-month low in December despite a contraction in exports as a slump in crude oil prices and lower gold purchases caused imports to drop at a faster pace. Non-oil and non-gold imports rose at a healthy pace, suggesting strength in the domestic economy . The lower trade deficit will provide support to Indian rupee amid volatile global financial markets because of crashing commodity prices, competitive currency moves and global growth concerns.Exports contracted by 3.77% in December after 7.2% growth last month mainly due to lower valuation of petroleum exports and a fall in the value of gems and jewelry sold overseas. Imports declined by 4.78% during the month on a year-on-year basis against an sharp 26.79% growth in November, narrowing the trade gap to $9.4 billion, the lowest since February last year.
Non-oil, nongold imports rose 12.5% in December, adding to positive signs on growth. The Reserve Bank of India on Thursday cut its policy rate by 25 basis points to support growth.Gold imports growth eased significantly in December after the government scrapped a rule that mandated traders export one-fifth of the gold consignment imported into the country .
The inbound shipments of the yellow metal stood at $1.3 billion in December against $5.6 billion in November, when it had posted 570% growth on an annual basis. The 80:20 scheme to restrict gold imports was scrapped in November, freeing shipments of the yellow metal after the central bank said the current account deficit situation was comfortable due to low oil prices. India's current account deficit had widened to a fivequarter high of 2.1% of GDP in the second quarter. Gold imports fell to 39 tonnes in December from 152 tonnes in November. The 10% duty on gold, having been raised to that level in phases by UPA government, has been retained.
Gems and jewellery exports contracted by 1.12% to $42.6 billion against 44% growth posted in the previous month.The unceasing decline in global oil prices led to a 28.6% contraction in India's biggest import item but it also pulled down petroleum exports, which fell 20.1% in the month. Global crude oil prices have declined by 60% in the last six months. The engineering sector continued to do well in December with exports up 20.5% to $6.9 billion. Pharmaceuticals exports grew 2%, while readymade garments expanded 10%.