BackThe trade numbers and the base effect
Trade deficit peaked in October and has been coming down since but the economy faces self-inflicted wounds
Premium(Pradeep Gaur/Mint)
It’s always good, when considering growth compared with a year ago, to check what the growth rate was in that year-ago period. That way, we get a good idea of the impact of the base effect. The chart shows India’s recent trade growth compared with the year-ago month and it also shows what the rate of growth was a year ago.
What do the data reveal? For one, export growth seems to be picking up. True, growth in December was still in negative territory, but at minus 1.9%, it’s better than November’s minus 4.2%. What’s more, notice that the December 2012 improved performance was on top of a higher growth rate in December 2011, which makes it even more commendable.
The Purchasing Managers’ Surveys also suggest that export growth is picking up. The HSBC India Manufacturing PMI for December says new export orders are expanding at a solid pace. Leif Eskesen, chief economist for India and Asean at HSBC, said, “On the external front, the lagged effect of the depreciation of the exchange rate may have helped fill the order books." Of course, the improvement is hardly anything compared with China’s spectacular 14.1% growth in exports in December.
The International Monetary Fund World Economic Outlook has predicted that growth in emerging market exports will improve in 2013 to 5.7% from 4% last year. Import growth by emerging economies, on the other hand, is expected to slow to 6.6% from 7% in 2012. Will that trend be true for India too?
India’s trade deficit peaked in October 2012 and has been coming down since. But the economy faces several self-inflicted wounds. These include the ban on iron-ore mining, which has affected exports. Coal imports due to Coal India Ltd’s inability to ramp up production too have risen. Also, a note by ICICI Securities points out, “In the past, due to the continuous expansion in refinery capacity and the resultant export of products…the net increase in oil import bill was partly offset by 10-15% on account of export of refined products." The note says that with stagnant refinery capacity, the net import bill will go up. It is these headwinds that have continued to weigh on the rupee.
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