WORRY SIGNS

New Delhi, July 1: The country’s trade deficit widened to a record $10.77 billion in May as imports surged 27.1 per cent because of spiralling crude oil prices.

The crude import bill stood at $8.47 billion in May, 51 per cent higher than $5.61 billion in the same month a year ago.

Exports grew at its slowest pace in 14 months because of an economic slowdown in key markets and domestic curbs to control inflation. Exports in May 2008 rose 13 per cent to $13.78 billion from $12.21 billion in the corresponding month of the previous year.

“The biggest challenge to trade this year is slackening global demand and rising oil prices. We expect export growth to moderate,” said Sonal Varma, an economist with Lehman Brothers.

“Oil prices will average at $112 a barrel in 2008-09 and crude import will surge to $110 billion in the current financial year from $77 billion in 2007-08,” Varma said.

“Oil price is the key threat to India’s balance of payments surplus this year and further increases can easily tip this balance,” she said.

Exports have been hit by government measures to contain inflation, which surged to a 13-year-high of 11.42 per cent for the week ended June 14. The government has banned the export of pulses, wheat, rice, cement and some steel products.

“The US and European markets are on the verge of recession. They would have impacted our export growth. Besides, domestic procurement (by exporters) is hard hit by inflation,” said Ganesh K. Gupta, president of the Federation of Indian Export Organisations.

According to Gupta, the government should not immediately withdraw the benefits that were extended last year because of the appreciation of the rupee.