India's August trade deficit widened to a 23-month high and the trade secretary raised his projection for the full-year figure, but said the bulging deficit was not yet a problem and could be financed. Rahul Khullar said the trade deficit could touch $135 billion for the year to end-March 2011, higher than his August forecast for $120 billion.
The widening deficit puts further pressure on the current account and on the need for India to attract capital inflows to finance the gap and avoid pressure on its currency. "That ($135 billion is much higher ... than we ever had it before. It is therefore naturally a matter of concern," Khullar told reporters on Wednesday. "I don't think it (trade deficit) is a serious problem still. It still can be financed." August's trade deficit stood at $13.06 billion, he said, the highest monthly reading since September 2008 - when it had touched $15.35 billion - according to Thomson Reuters data.
"It's not yet a concern as we are getting enough of capital flows. But we need to watch this space. $13 billion per month is not a small number," Sonal Varma, India economist at Nomura Securities told Reuters. Khullar said August exports grew an annual 22.5 percent to $16.64 billion, and the country was on course to meet its $200 billion exports target. Imports in the month were up 32.2 percent to $29.7 billion. Asia's third-largest economy is targeting close to 15 percent export growth in the current fiscal year, following a drop of 4.7 percent in the 2009/10 fiscal year as the global financial crisis-led slowdown crimped demand.
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