India's current account deficit (CAD) narrowed sharply to 0.9% of GDP in 3QFY14. For the month of February, the absolute trade deficit was down to 5 month low of US$ 8.1 bn. And this was predominantly due to restrictions on gold imports and not due to rising exports. In fact, export growth, as a measure to tame CAD, is likely to face challenges in future. The February growth number for exports already reflects that. In the month of February, exports declined 3.7% YoY. This is believed to be a secular decline for months to come. That's because EU's scheme which gives preference to exports from developing countries will no longer be applicable to India henceforth. This obviously shall hurt export volumes of India. Further, rupee appreciation from here can make the matters eve n worse. As such, future export growth is under cloud. Another worrying factor is inability to check imports. While restrictions on gold imports have helped curb the overall deficit, non-gold and non-oil imports are a cause of worry. Though they too have declined but the pace of their decline has been modest. Thus, there are doubts whether the current decline in CAD can be sustained. Prima facie, it appears to be a difficult task.

Absolute Trade Deficit Down to 5 Month Low