India's trade deficit narrowed in April due to a sharp fall in gold imports and an uptick in exports, easing pressure on the current account balance, government data showed on Friday.
The drop in gold imports could strengthen demand for easing of restrictions that the government imposed last year to rein in the current account deficit and ease pressure on the rupee.
Gold imports fell 74.1 per cent in the first month of fiscal year 2014-15 from a year earlier.
Finance Minister P Chidambaram had raised the import tax on gold to 10 per cent from an initial 2 per cent and introduced administrative controls that helped bridge the current account gap.
India's main opposition Bharatiya Janata Party, predicted to form the next government later this month, has promised to ease restrictions on gold imports, saying these curbs had led to smuggling.
Its prime ministerial candidate, Narendra Modi, has said that any action on gold should take into account the interests of the public and traders, not just economics and policy.
India's current account deficit is estimated to fall to around $35 billion in the fiscal year 2013-14 from about $88 billion the previous year.
Analysts, however, said early easing of restrictions on gold imports and a recovery in the economy could lead to a surge in the import bill - again widening the current account gap.
"Risks are that the current account deficit could re-widen back towards 3 per cent if gold imports rebound sharply when trade restrictions are lifted, along with an improvement in the domestic investment cycle," said DBS in a research note on Friday.
The trade deficit stood at $10.09 billion, down from $10.51 billion in March, the data released by the Ministry of Commerce and Industry showed on Friday.
Merchandise exports rose 5.26 per cent from a year earlier to $25.63 billion, after falling 3.15 per cent in March.
Imports fell 15 per cent year-on-year to $35.72 billion last month, the data showed.
Copyright @ Thomson Reuters 2014
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