Falling exports hampers India’s growth directly

Falling exports hampers India’s growth directly

Mumbai: There is a dire need to revive the country’s export sector as falling exports not only hamper India’s growth directly, but also affect a large population dependent on labour-intensive export units, Credit Analysis & Research Ltd. (CARE) said in its Eco Alert report here.

India’s exports have shown a declining trend since October 2008, accompanied by downturn in imports mainly due to lower oil import bill. Trade balance deficit, as a result narrowed to $25.98-billion during Q1 FY10 compared to $314- billion during Q1 FY09. Despite of net invisibles surplus of $20.2-billion, India’s current account deficit stood at $5.8-billion for Q1 FY10, the report said.

Exports continued to taper for the eleventh consecutive month. However, there has been some arrest in the contraction. The year-on-year contraction in the export for August 2009 was reported at 19.4%, ($14.28- billion), lower than 28.4% in July. The contraction is mainly attributed to continued sluggishness in global demand accompanied by lower commodity prices compared to the same time last year when the prices were at their peak.

Apart from placing pressure on the country’s balance of payment (BoP) position, the shrinking exports have also substantially reduced the employment opportunities in labour-intensive segments like textiles, gems and jewellery, marine products and handicrafts.

India’s imports too dropped by 32.4% valued at $22.66-billion, mainly led by lower oil-import bill and moderated domestic demand scenario as a consequence of the global recession. The oil import bill contracted substantially by 45.5% to $6.28-billion as against $11.52- billion in the previous year. Given that the commodity prices, especially crude oil prices, had reached their peak during this time last year, a high base year may be attributed to this tremendous contraction in the import bill.

Contraction in the non-oil import bill to the extent of 25.5% has been witnessed mainly due to a lower demand in consumer goods as well as intermediary goods.

Overall, it seems that foreign investors have begun to show confidence in the Indian capital market (as evidenced from the revival in capital inflow). Revival in capital inflow to India, mainly foreign investments of which portfolio investments witnessed a turnaround after reporting a net outflow in the last quarter registered a net inflow worth $8.3 billion, the report said.

Additionally, NRI deposits which have remained quite strong during the period of crisis reported a net inflow of around $2 billion. Thus, a turnaround in the capital account position of India for Q1 FY10 was witnessed, which reported a marginal surplus of $6.7 billion as against a deficit in the past two quarters.