Surge in trade deficit touches a record $6.2 billion in May ''07

Merchandise trade data for May 2007 further confirms that India is at the peak of its investment cycle. The surge in trade deficit, due to a 42% rise in non-oil imports, touched a record $6.2 billion in May 2007, up from $4.3 billion laste year. As expected, imports of project goods and machinery rose the fastest, indicating the huge investments by India Inc. Exports failed to keep pace with the imports and grew by just 18% during the month. The trend of imports outpacing export growth has begun since 2004-05. It was the time when Indian industry had recovered from recession. A resilient industrial activity is expected to keep demand for imports high in the coming months as well. Stronger rupee in the past couple of months would also have helped importers by making imported goods relatively cheaper. On the other hand, exports failing to meet pace of imports have ballooned the trade deficit. Exports rose just 18% in May 2007, lower a year ago. This is not a sudden development; exports have been decelerating for the past five months. A slower growth in the US economy could be the reason for the southward trend in exports.