The recently released merchandise exports figures for May give a mixed picture. While overseas shipments from the country registered a robust 9.1% growth in the month to touch the $38.13 billion-mark, trade deficit also surged to a seven-month high of $23.78 billion, exceeding the estimate of $19.5 billion mark. This deficit is 5.5% higher on Y-o-Y basis and 24.5 higher over the previous month’s trade gap of $19.1 billion. Experts seem divided on this development.

No doubt, over 9% exports growth in May sounds good, particularly with the textiles sector recording healthy growth despite challenges in India’s major markets such as the EU, the US and West Asian nations. Also, engineering goods – another labor-intensive sector—showed resilience, growing by over 7% Y-o-Y, reaching $9.98 billion. Electronic exports also grew 23% while exports of gold jewellery witnessed 13.1% growth, although overall gems & jewellery exports declined nearly 5%.

Despite this overall encouraging scenario, noticeably two sectors are at present struggling, however. First, the ban on some key agricultural commodities -- including sugar, non-basmati rice and wheat – has impacted the sector for quite some time now, resulting in a loss of $4,880 million in past three years. On the other hand, a 20% decline in spice exports in May, on the heels of Singapore and Hong Kong recently expressing safety concerns, warrants urgent corrective action to prevent further trouble.

The May data shows India’s trade deficit climbing to a seven-month high of $23.78 billion. While negative trade balance is not always bad, particularly when this results from higher imports of raw materials or intermediary products to be used in manufacturing, complacency is not welcome. This is true that FDI is coming in and our forex reserves have reached a record high recently, but policy makers need to take a cautious approach in handling this situation.

I invite your opinions.