New Delhi: India’s merchandise exports growth slumped to its lowest level in two years in October, confirming fears that the crisis in the euro zone and the slow recovery of the US economy have impacted demand for Indian goods.

Weak outlook: Commerce secretary Rahul Khullar says India’s trade picture will not be rosy for the next six months. By Satish Kaushik/Mint

Indian exports grew 10.8% in October from a year earlier to $19.9 billion (around 98,300 crore), the lowest in the last two years, according to data released by commerce secretary Rahul Khullar on Tuesday.

Imports grew 21.7% because of rising prices of crude oil and other commodities to $39.5 billion, leaving a trade deficit of $19.6 billion—the highest ever in any month in the past four years.

During the first seven months of the current fiscal year, exports have gained 46% while imports rose 31%. Exports in the April-October period now total $179.8 billion. Union commerce minister Anand Sharma has set an export target of $300 billion for the year to 31 March.

“The slowdown in exports is across the board," Khullar said. “It will be a difficult autumn. The picture will not be rosy for the next six months."

The ballooning trade deficit is worrying, Khullar said. “At this rate, it may touch $150-160 billion this fiscal."

India’s exports growth had so far shown unexpected buoyancy in recent months, despite the economic slowdown in developed economies and rising global uncertainty. While the official explanation was that the diversification of India’s exports to developing countries had helped, analysts had expressed doubts over the accuracy of the trade data.

The export numbers now seem more realistic, given the overall global economic scenario, according to D.K. Joshi, chief economist at credit rating company Crisil Ltd. Joshi said annual exports growth this fiscal may slow to 15%, from 41% in 2010-11, and it may be difficult for the government to achieve the target.

Joshi said the rising trade deficit will add to the current account deficit worry. “The current account deficit may still remain below 3% of gross domestic product, unless software exports slow down sharply," he said.

The upside risks to the current account deficit have increased owing to a slowing global economy and debt-related stress in the euro area, the Reserve Bank of India had said in its half-yearly macro economic analysis. It had also cautioned that the slowdown in advanced economies may weigh on India’s exports in subsequent months.

“The crisis in the euro zone will spread in the next couple of months, impacting exports in ensuing months," said Ramu S. Deora, president of the Federation of Indian Export Organisations.

Meanwhile, further confirming that the domestic economy is slowing, provisional data released by the finance ministry showed indirect tax collections in October contracting by 2.5% to 30,278 crore. A cut in customs and excise duties on oil products in June led to the lower accruals. Central excise collections contracted 5.3% while customs collections were down by 11.6% during the same month.

PTI contributed to this story.

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