India's August trade deficit shrinks as exports rise

Indranil Mukherjee | AFP| Getty Images

India's trade deficit narrowed to $10.9 billion in August, helped by a double digit rise in merchandise exports, provisional government data showed on Tuesday, offering some respite for the troubled rupee currency.

Merchandise exports rose 12.97 percent in August to $26.14 billion from a year earlier. Imports fell 0.68 percent year-on-year to $37.05 billion.

"We are closing the trade gap," Trade Minister Anand Sharma told reporters at a press conference.

(Read more: India's crisis a 'wake-up call': Stephen Roach)

Why this pro is optimistic on Rajan and the rupee
Why this pro is optimistic on Rajan and the rupee

The Indian currency has been hammered down in a sell-off in emerging currencies as foreign investors readjust their exposure to markets like India, anticipating higher interest rates in the United States.

The rupee hit an all-time low of 68.85 against the dollar last month on concerns over New Delhi's ability to fund its bloated trade deficit.

(Read more: Mobius: The rupee rout will be over soon)

Crude prices fall

Improving global investor sentiment also helped the rupee on Tuesday. Russia's proposal to work with Damascus to put Syria's chemical weapons under international control was seen potentially averting planned U.S. military strikes.

RBI's new steps are exactly what India needs: Pro
RBI's new steps are exactly what India needs: Pro

Benchmark Brent oil prices fell, extending Monday's slide, a big factor for India since crude oil is its biggest import.

Bond yields also fell sharply, tracking a drop in crude oil prices. The 10-year bond yield was down 20 basis points (bps) at 8.43 percent.

Local stocks rose by more than 2 percent.

(Read more: RBI's Rajan takes a deep dive to save the rupee)

Rajan's appointment has sparked badly-needed optimism among investors, after the rupee had slumped over 20 percent so far this year, as markets hope for a fresh approach to the new RBI's controversial defense of the rupee.

A Reuters poll last week showed that the rupee is seen bottoming out to around 66 to the dollar in one month, though it was not expected to regain much ground in the coming year.