New Delhi: India’s merchandise exports contracted for the 13th month in a row in December due to tepid global demand and a volatile global currency market, and the trade deficit widened due to a jump in import of non-essential items.
Data released by the commerce ministry showed that during the month, exports contracted 14.75% to $22.3 billion, while imports shrank 3.9% to $33.9 billion, amounting to a trade deficit of $11.7 billion.
In the same month, exports from China contracted 1.4%, performing much better than expected, possibly due to a depreciation of the yuan.
India’s trade minister Nirmala Sitharaman last week flagged concerns that the depreciation of the Chinese currency may adversely impact India’s exports.
Jay Shankar, chief India economist at Religare Institutional Research, said while the weakness in global demand has been the main reasons for decline in India’s exports, a stronger rupee compared with its peers has also hurt exports. The rupee has been the top performing emerging market currency in 2015, with the real effective exchange rate rising 3.7% in the April-December period.
Yes Bank chief economist Shubhada Rao said India’s overall external position remains comfortable due to the cushion provided by lower global commodity prices, despite a rise in the trade deficit in December. “We expect a full-year merchandise trade deficit of around $140 billion for 2015-16. As such, we stick to our view of current account deficit coming at 1.1% of gross domestic product (GDP) in 2015-16, a mild improvement over 1.3% in the previous year,” she added.
India’s overall exports are projected by the commerce ministry to decline 13% from the previous year’s level to $270 billion in 2015-16, with a trade deficit of around $120-125 billion. The government’s earlier target of $900 billion in exports of goods and services by 2020, raising the country’s share in world exports to 3.5% from 2% now, looks more daunting.
Non-oil imports picked up 7.63% in December, while oil imports contracted 33.2% due to falling crude oil prices.
Seventeen out of 30 import items were positive, compared with three in November. However, it is imports of pearls, precious and semi-precious stones ($2 billion), gold ($3.8 billion), silver ($472 million) and electronic items ($3.8 billion) that contributed to a pickup in non-oil imports. Contraction in machinery equipment (-1.1%), transport equipment (-38.8%) and project goods (-29.1%) indicate no sign of a pickup in investment demand.
Exports of drugs and pharmaceuticals (8.2%), chemicals (1.1%), readymade garments (5%) increased in December, while gems and jewellery (7.8%), engineering goods (-15.7%) and petroleum products (-47.7%) contracted.
The eight items of export which turned positive are coffee, tobacco, spices, cereal preparations and miscellaneous processed items, chemicals, electronic goods, handicrafts (excluding handmade carpets), plastics and linoleum.
Net earnings from services trade touched $6.3 billion in November, up just 0.2%, while cumulatively in April-November, net earnings from services fell 3.8% compared with a year ago, according to data released by the Reserve Bank of India on Friday.
T.S. Bhasin, chairman of Engineering Export Promotion Council of India, said it is no consolation for exporters if exports from the rest of the world are also falling. “If we find ourselves in the same trough, how does India become a bright spot? Exports are a crucial component of GDP and overall job-creating, and the onus must now be on finance minister Arun Jaitley to be liberal with export incentives without waiting for the budget. February end will be too late,” he added.
Perturbed by the continuous decline in exports, the government has raised duty drawback rates for exporters and implemented the interest stabilization scheme in November. While the increase in duty drawback rates will help exporters recover higher input tax outgo that they pay during the process of making the final product, the interest stabilization scheme will allow exporters to receive bank loans at a lower rate of interest.