India's trade deficit ballooned to USD20bn

But here are 3 reasons why it's poised for moderation.

According to Nomura, India's trade deficit widened to USD20bn in January from USD17.7bn in December, worse than expected (Nomura: USD18.2bn) and largely because of higher crude oil prices and frontloading of gold imports ahead of the hike in custom duty on gold imports in third week of January.

Here's more:

Export growth picked up to 0.8% y-o-y in January from -1.9% in December while import growth remained largely unchanged at 6.1%. Oil imports rose to USD15.9bn in January (December: USD14.4 bn) and the non-oil imports rose to USD 29.7 bn (USD28.1bn).

Going forward, we may see some moderation in the monthly trade deficit in February and March because of:

1) February and March tend to be seasonally positive for the trade balance

2) There is likely to be some reversal in gold imports in Feb/Mar after the frontloading of gold imports in January

3) Oil import (in volume terms) is likely to weaken in the coming months because of lower demand from bulk users post the government‟s decision allowing oil marketing companies to sell diesel to bulk users at market determined (non-subsidized) prices. 

By contrast the recent increase in international crude oil prices may offset any benefit from reduced demand on the oil import bill (Our estimates suggest that ceteris paribus USD10/barrel increase in average oil prices increases the oil import bill by USD 9bn per annum).

Overall, we see some upside risk to our FY13 current account deficit forecast of 4.9% of GDP on account of the sustained increase in oil prices in Q1 2013 till date.