Export trends as well as corporate results for the recently-concluded quarter highlight the uncertainty that still surrounds India’s economic recovery. Considering that prospects for economic growth in the current financial year are underpinned by strong exports and resumed infrastructure investments, trends revealed by recent data do not appear promising.

For one, exports contracted a hefty 5% year-on-year in October. This follows a three-month deceleration since July and raises doubts if May-June’s double-digit export growth was a one-off. It also places average export growth for the year so far at just 5%. Worryingly, this contraction is broad-based, suggesting that weak external demand lies beneath this decline. Indeed, other than some agriculture items, ceramics and handicrafts, the export of almost every product decelerated. The most severe contractions were concentrated in iron ore, electronic goods, textiles, engineering goods, plastics and chemicals. In conjunction with imports, which grew 19% year-on-year minus oil and were fuelled by a 280% jump in gold and 136% rise in silver imports, overall growth in external trade was actually zero.

Meanwhile, the recession in Japan, Russia and Brazil, the spectre of structural deflation in the euro zone, a struggling China, and a Middle East impacted by crashing oil prices do not encourage hopes of a near-term revival in overseas demand.

Besides hurting growth prospects, inadequate export receipts, if sustained, could strain the current account, increase dependence on short-term foreign capital and exacerbate financing constraints, should import demand outpace the offsetting breather from a lower oil import bill. Little surprise then that the government is reported to be quickly introducing gold import curbs.

Demand is visibly weak on the domestic front too as observed from companies’ results for July-September. Reported analyses have noted that lowered input costs solely drove firms’ profits while revenues from sales remained weak. That means conditions for fresh investments are still not observable. Rural demand, the mainstay of aggregate consumer spending (60% of India’s demand base) for past two years, is flagging as incomes are affected by lower government spending, uneven rainfall, minimal increases in farm support prices and so on. So far, lower inflation and the prices of oil and commodities haven’t fed through into a visible boost to real incomes.

Sector trends relating to infrastructure spending still look unsure. While cement demand grew 8% annually over a low base last year and a delayed monsoon that extended construction period, overall capacity utilization rate inched up from 65% to 67%. This tells us that firms have some way to go before they contemplate further investments. In combination with the lack of borrowings from banks, the continued deleveraging of stressed infrastructure firms, and a host of other regulatory issues that need untying, there is yet little evidence of strength in infrastructure spending.

As such, there is little surprise left in the forthcoming gross domestic product numbers for the second-quarter, to be released on 28 November. In fact, one needs to keep one’s fingers crossed for the October-December quarter as well in the light of these signs.

Renu Kohli is a New Delhi-based macroeconomist.

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