New Delhi: The outlook on India’s external trade in 2009 is not encouraging and it is too early to predict a turnaround, the 2009 Economic Survey said.
The country’s exports showed resilience till August 2008, but succumbed to pressure from lower import demand from developed nations after the collapse of Lehman Brothers Holdings Ltd caused the global economic slowdown to deepen.
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In the year ended 31 March, India’s merchandise exports rose 5.45% to $175 billion (R8.36 trillion) in actual earnings, compared with 29% growth in the previous year.
Imports slowed significantly in the year, growing at only 14.3% in actual spending, compared with 35.25% growth in 2007-08.
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As a percentage of gross domestic product (GDP), exports were 15.2% and imports 27.1% between April and December last year, compared with 13.5% and 21.8%, respectively, in the same period the preceding year.
The report on the state of the country’s economy said that the pattern of India’s overseas trade had changed direction during the decade. The share of the US, its largest trading partner, declined by 1.5 percentage points to 10.1% in 2007-08. The share of China, its second largest trading partner, increased to 9.2% in 2007-08 from 4.9% in 2003-04.
Between April 2008 and February, India had a trade surplus with the US, the UK, Singapore, Brazil and Hong Kong. Its largest trade deficits in that period were with Saudi Arabia and China.
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Even though the survey said India needs to be wary of any protectioinist tendencies in the light of the global slowdown, it defended the increase in import tariffs on certain items in November and December.
“In no case has the customs duty/CVD (countervailing duty, a special levy imposed on imports to offset the benefits of subsidies paid to producers or exporters in the exporting country) rate been increased beyond the rate(s) prevailing earlier. The increase in import duties, if any, has only been to the extend of restoring status quo for items where reductions were made to combat inflationary pressures,” it said.
The survey emphasized the need to have a low tax regime with few exemptions, with each exemption notification having a sunset clause that would trigger an automatic review.
To make exports competitive, the survey called for a continuing reduction in customs and excise duty, streamlining existing export promotion schemes and giving special attention to export infrastructure, along with rationalization of port service charges.
India remained an attractive destination as net foreign direct investment (FDI) inflows increased to $17.4 billion in the year ended 31 March from $15.4 billion a year ago. The comfortable foreign exchange reserves position also softened the impact of global crisis on the external sector of the economy, the survey said.
The balance of payments data for fiscal year 2008-09 by the Reserve Bank of India released on 30 June showed that despite a higher surplus of net invisibles of 7.7% of GDP, the large trade deficit of 10.35% of GDP led to a higher current account deficit of 2.6% during the year. Invisibles include services, fund transfers and investment income.
However, in the fourth quarter of the financial year gone by, the current account balance saw a turnaround, recording a surplus of $4.7 billion due to a lower trade deficit. The survey forecasted that with reasonable invisible account surplus, the economy could have a current account surplus of 0.3-0.8% of the GDP in the current fiscal year.
Net capital flows declined to $9.1 billion in 2008-09, compared with $108 billion in the preceding year. In net capital flows, all major components, except FDI and deposits by non-resident Indians, showed a decline during 2008-09. Foreign institutional investors withdrew $15 billion in the year ended 31 March.
Graphics by Sandeep Bhatnagar / Mint