India’s exports continued to slide for the 11th month consecutively, falling 17.53 per cent in October, figures released by the ministry of commerce showed.
Though exports declined reflecting a weakening global scenario, the narrowing trade deficit provided a sliver of relief as imports fell further due to a dip in gold imports and prices of fuel.
While India’s trade deficit is expected to remain narrow as gold demand remains sluggish and crude prices continue to be subdued, keeping the current account deficit (CAD) within 1 per cent of GDP, the fall in non-oil exports can hurt growth prospects.
Fall in exports reflects global trend
The appreciation of the rupee against the dollar and its relative strength against the emerging markets currencies have hampered India’s growth prospects. The global slowdown owing to declining growth in China and commodity price crash have also proved to be negative.
While India has seen a decline in exports despite the government’s move to introduce reforms, the trend is rather a global one. Organisation for Economic Co-operation and Development (OECD), in its latest bi-annual economic outlook report, has highlighted that the global trade is likely to grow by only 2 per cent in 2015—a level that coincided with downturns in 1975, 1982-83, 2001 and 2009.
“The latest set of incremental data for global trade has only added to the concerns flagged by the OECD report. For October, China reported a substantial 19 per cent dip in imports, while the bellwether of Asia’s export cycle, Taiwan and Korea suffered a fall of 11 per cent and 16 per cent in outbound shipments, respectively,” said Shubhada Rao, chief economist at Yes Bank.
Not so rosy outlook for exports
The situation in India has been better as the decline in exports has been offset by a fall in imports mainly due to subdued crude prices. However, the fall in exports, also driven by the slip in global trade momentum, remains a concern. This is because even when the economy starts gaining momentum, imports will rise but exports could continue to remain sluggish.
A recovery in imports seems to be far given that non-oil and non-gold imports are sluggish. Similar is a recovery in overall exports that declined also due to a fall in exports of iron ore and engineered goods.
With demand conditions strengthening in the economy, a pickup in imports may be seen before the export sector starts picking momentum which will lead to widening trade deficit and a bigger CAD which India has tried to stave off. Foreign inflows will cover CAD for coming months but the government will have to act fast to boost India’s export sector.
For now, the target of exports at $900 billion by 2020 seems a bit stretched.
