Apart from the impact of high crude oil price, the significant growth in merchandise trade deficit in 2004-05 and 2005-06 was also caused by the sizeable growth in non-oil  6  BIS Review 56/2006  goods imports, emanating from capital goods, export-related inputs and a range of intermediate goods all of which have an intrinsic growth linked character.
Besides, the large expansion in imports is also spurring vigorous export growth. In this sense, the merchandise trade deficit has acquired a growth leading dimension and is thus a positive feature of the Indian economy.