New Delhi: India’s merchandise exports in January shrank the most in at least a decade—a contraction for four successive months—and it is unlikely that a scaled down export target of $175 billion (Rs9 trillion) in the year ending March would be met.
Distant goal: Commerce minister Kamal Nath. Last week, he had revised this fiscal year’s export target of $200 billion to $175 billion. Harikrishna Katragadda / Mint
Exports shrank 16%, the sharpest since May 1998, when overseas sales fell 17.22%, commerce ministry data showed on Monday. For the 10 months from April to January, exports grew 13.2% to touch $144.3 billion, compared with $127.45 billion in the previous fiscal year.
Commerce minister Kamal Nath last week revised the annual exports target of $200 billion to $175 billion while announcing an interim trade policy.
Imports also declined in January by 18.2%, with the Indian economy slowing faster than expected, reducing the trade deficit to $6.07 billion, compared with $7.85 billion a year ago.
The country’s economy grew 5.3% in the third quarter ended December, bringing down growth in the first nine months of the fiscal year to 6.9%—making it difficult for it to meet the government’s 7.1% growth estimate.
Ajay Sahay, director-general of industry lobby group Federation of Indian Export Organisations (FIEO), said even the revised export target will be hard to meet. “Last year in February and March, exports were $24 billion. We expect exports to remain in the range of $165-168 billion this year.”
Moody’s economy.com economist Sherman Chan said in a statement that outbound shipments are set to further moderate in coming months, “reflecting dismal economic conditions worldwide”.
Sahay pointed out that the decline in non-oil imports doesn’t augur well for domestic manufacturing and may impact gross domestic product (GDP) growth in the last quarter of the current fiscal.
Non-oil imports declined by 0.5% in January and oil imports declined by 47.5%, compared with a year ago. He said the government needs to take “bold decisions” to help exporters tide over the situation.
Last week, the government announced simplified export procedures in the interim trade policy. It also doled out a Rs325 crore export package for labour-intensive textiles and leather industries, which have suffered badly due to the fall in global demand. Later, the government clarified that incentives would be available only on US and Europe shipments and was limited to six months from 1 April.
However, the fall in the value of the rupee against the dollar, which is a worry for the Reserve Bank of India, may come to the rescue of exporters entering into fresh contracts. “For exporters who have already hedged, the rupee depreciation will amount to a notional loss for them. However, for exporters who are accepting fresh orders, it is helping them,” Sahay said.
Exports in January in rupee terms grew at 4.3% and imports at 1.4%. The rupee slid to a record low on Monday at 51.99 to a dollar, according to Bloomberg data, on speculation that Standard & Poor’s will soon cut the nation’s debt rating to junk. S&P last week revised India’s outlook from stable to negative on worsening fiscal situation.
However, Moody’s Chan doesn’t believe a weak rupee will help to boost exports, as “the main reason for the slump in orders is subdued global demand rather than a loss in price-competitiveness”.
Credit Analysis and Research Ltd chief economist Soumendra Dash said the rupee should not be a concern for the economy as India’s dependence on imports is declining.
“The rupee has shown more resilience than other Asian currencies. Our forex reserves is also comfortable vis-a-vis other countries in Asia, except China, which adds to the strength of the economy,” he said.
Dash expects the rupee not to exceed 51 against the dollar in the fiscal year.
Bloomberg contributed to this story.