New Delhi: India’s merchandise exports in March declined for the sixth successive month on weak external demand from developed economies, denting hopes of an early economic revival.
Exports which contribute around 16% to India’s gross domestic product (GDP), fell by 33.3% in March to $11.5 billion (Rs57,730 crore today), the sharpest fall since April 1995. Exports for the fiscal year 2008-09 touched $168.7 billion, recording a 3.4% growth in dollar terms and falling short of the government’s revised target of $170 billion, according to data released by the ministry of commerce and industry on Friday.
Imports in March also declined for the third successive month. The decline, by 34% to $15.6 billion, was led by lower crude oil prices and weakening domestic demand. In fiscal year 2008-09, imports grew 14.3% to touch $287.7 billion.
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Analysts say the numbers indicate that a sustained recovery of the Indian economy is still far away. “I am not expecting any significant recovery; rather, (I am) looking for stability in the short run. In current scenario, 5.5-6% GDP growth will be extremely beneficial for India,” said Indranil Pan, chief economist at Kotak Mahindra Bank Ltd.
That’s a popular view.
“I don’t see any sign of sustained recovery. Till October, industrial growth will remain subdued. Nobody is talking about factory output growth of over 5% in current scenario,” said Dharmakirti Joshi, principal economist at Crisil Ltd, a Standard and Poor’s company.
Factory output data, which is scheduled to be released on 12 May, is expected to be better than the 1.2% contraction registered in February.
In his exit interview to Mint, Arun Ramanathan, who retired as the finance secretary on Thursday, said that the economy could start recovering from October, but the head of an industry lobby group said the numbers released on Thursday indicated that demand in the economy was still week.
Harsh Pati Singhania, president of industry lobby Federation of Indian Chambers of Commerce and Industry, said the contraction in exports since October last remains an area of concern. “We are also concerned about the decline in non-oil imports for three successive months. This signifies rather weak demand in the economy.”
Non-oil imports in March contracted 18.9% to $11.7 billion while oil imports shrank 58.1% to $3.8 billion. “The fall in non-oil imports in the fourth quarter (January to March) of 2008-09, if concentrated in the areas of machinery, equipment and project goods, would entail slowdown in industrial production and that is a matter of deep concern,” he added.
A survey of professional forecasters, conducted by the Reserve Bank of India (RBI), has cut its estimate of GDP growth rate to 5.7% for 2009-10, from the earlier 6%.
The economy probably expanded 6.6% in the year ended March, less than the 6.8% forecast earlier, according to the median compiled by RBI from the forecasts.
The central bank, which on Tuesday unveils its growth forecast for the current fiscal year, said a slowdown in industrial production, deceleration in private consumption and investment demand, and declining exports are the big concerns facing the economy.
Commenting on the trade data, A. Sakthivel, president of Federation of Indian Export Organisations (Fieo), said the fall in exports is due to the absence of demand, primarily on account of recession in the US, Europe and Japan. However, Sakthivel said the worst was over and that exports would pick up from July. “This is because the huge inventories in Europe are fast depleting and will be over by October.” The recovery, though, would be specific to some sectors, he added, and handicrafts, and gems and jewellery wouldn’t show an immediate improvement.
Crisil’s Joshi doesn’t share Sakthivel’s optimism. “Europe is in a worse shape than (the) US. Hence, any demand pick-up in Europe may be more delayed. We are looking for a subdued export scenario with a growth rate of about 2-3% in 2009-10.”
The International Monetary Fund has forecast global economic growth to contract 1.3% in 2009. It has also maintained that the volume of world trade is expected to dip in 2009 for the first time since 1982.
Fieo expects India’s exports to touch $185 billion in 2009-10, a 10% growth over last year. Sakthivel said that the diversification of India’s export basket—with exports to Latin America, Africa and Asia helping—would see the country post better export figures.
The trade deficit in March (the value of exports less imports) declined, but it grew 51% in 2008-09 over 2007-08. Experts say the fluctuation of the rupee, one factor responsible for this, could continue this year too. “The fate of the rupee will largely depend on capital flows. It will also depend on the outcome of general elections and an unstable government may put further pressure on it,” said Joshi.
Graphics by Ahmed Raza Khan / Mint