New Delhi: India’s merchandise exports contracted for the eighth month in a row in July, though at the slowest pace in seven months, which is seen by many analysts as a ray of hope in difficult times.

Data released by the commerce ministry showed both exports and imports contracted 10.3% in the month, leading to a trade deficit of $12.8 billion, an eight-month high.

In comparison, China’s exports fell 8.3% in July, its biggest drop in four months.

While devaluation of the Chinese yuan is expected to further erode competitiveness of Indian shipments and has led to volatility in the exchange rate, the finance ministry on Friday said the devaluation will only have a temporary impact on the rupee as India has adequate foreign exchange reserves.

“What is happening in China has introduced some amount of volatility. Because our macroeconomic situation is better, this should be seen as a temporary adjustment because our fundamentals are strong," chief economic advisor Arvind Subramanian said, adding, “we have adequate (forex) reserves."

The Indian currency on Thursday hit its weakest level against the dollar since September 2013, as China further devalued the yuan. However, on Friday, the rupee snapped its seven-day losing streak and closed 10 paise higher at 65 on fresh selling of the greenback by banks and exporters on hopes of a resumption of foreign capital inflows into equity markets.

Exports of gems and jewellery grew 4.9% to $3 billion, drugs and pharmaceuticals rose by 10.9% to $1.5 billion, engineering goods by 0.8% to $5.8 billion and readymade garments by 6.6% to $1.5 billion.

Non-oil imports, which are considered to be an indicator of domestic demand, rose 3.8% to $26.5 billion in July while oil imports contracted by 34.9% to $9.5 billion during the same month.

Import of gold and silver jumped significantly by 62.2% and 113% to $3 billion and $278 million, respectively.

Amid the persisting contraction of merchandise exports, the rise in shipments in July, from the average of $22 billion in the first quarter (April-June), to $23.1 billion is a silver lining, said Aditi Nayar, senior economist at rating agency Icra Ltd.

“Half of the sequential rise in the merchandise trade deficit in July relative to the previous month can be attributed to the uptick in gold imports following the decline in price. A persistence of this trend may emerge as a cause for concern going forward," she added.

However, some exporters feel recovery in growth momentum in some export sectors may be temporary. “Continuous fall in exports is a matter of great concern and the troubles may even increase in the coming months since the global demand remains quite subdued, with the exception of the US markets," said Anupam Shah, chairman of the Engineering Export Promotion Council of India.

“The government needs to immediately step in and chalk out a strategy for giving a competitive edge to Indian exporters," Shah added.

India’s net services exports contracted 4.4% to $16.5 billion during the quarter.

Nayar said the contraction in merchandise exports and imports in the current fiscal is being echoed in the services sector as well.

“Despite the benefit from lower commodity prices, the merchandise trade deficit has narrowed by a meagre $2.5 billion in April-July 2015 relative to the previous year, which too is partly offset by the dip in the services trade surplus in the first quarter. As a result, the current account deficit is likely to record a marginal decline in the first quarter from $7.8 billion in the first quarter of the previous year," she added.