The continuing contraction in manufacturing in the rest of the world affected exports in February, but the saving grace is that the trade deficit is no longer as large as it used to be.
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The trade deficit has been steadily improving, from $7.5 billion (Rs38,250 crore now) in December to $5.6 billion in January and $4.9 billion in February, according to commerce ministry data. As we have said earlier, the worst seems to be behind us as far as the external deficit goes.
It is small consolation because the contraction in exports is deepening. That is evident from the data for the last six months: exports were up 10.4% in September, fell by 12.1% in October, dropped 9.9% in November, declined by 1.1% in December, were down 15.9% in January and declined 21.7% in February.
While some of the improvement is due to a smaller oil bill, the bulk of the fall in imports in recent months has been due to lower non-oil imports. Consider the numbers: Non-oil imports were up 31.9% in December before slipping into negative territory in January, when they fell 0.5% year-on-year (y-o-y). In February, the fall was a much larger 10.2%.
Since the growth in non-oil imports is a sign of demand in the domestic economy, the y-o-y contraction is not a good sign.
True, care must be taken in considering the data because prices of imports, especially commodities, would have fallen. But then, most of the large decreases in commodity prices occurred last year.
Despite the recent improvements in many indicators, therefore, the fall in non-oil imports is a clear indication that the economy is far from being in sound health. But a bottom now seems to be in place.
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Graphics by Sandeep Bhatnagar / Mint