New Delhi: India’s merchandise exports declined for the eighth consecutive month in May on weak demand from developed countries, where consumers and businesses are cutting spending in the midst of one of the worst recessions ever.

This has raised hopes among exporters that finance minister Pranab Mukherjee may announce more sops in the budget on 6 July to bail out the sector.

The sharp decline in imports narrowed India’s trade deficit to $5.2 billion in May, compared with $11.1 billion in the same month a year ago. Sandeep Bhatnagar / Mint

The World Bank in its latest Global Development Finance 2009 report said the world’s gross domestic product (GDP) may shrink by 2.9% and global trade is expected to plunge by 9.7% in 2009.

Commerce secretary Rahul Khullar on Wednesday said the continuous decline in exports is a matter of concern. “I expect more sops for exporters in the budget," he said, adding that the silver lining was that trade in gems and jewellery was picking up.

The government is expected to provide sops to the labour-intensive exports sector in the budget. It may also extend the interest rate subsidy provided to select export sectors by another year, according to a senior commerce ministry official. The scheme, aimed at helping exporters access cheap credit and remain competitive, is to end on 30 September.

A. Sakthivel, president of the Federation of Indian Export Organisations (FIEO), an industry lobby, fears more job losses if the fall is not arrested immediately through government intervention.

The India team of the United Nations Conference on Trade and Development (Unctad) said in a recent report that India lost 1.16 million jobs in 2008-09 and may lose 1.3 million jobs in 2009-10 in the exports sector. It forecast a growth in exports only in sectors such as plantation, agriculture, engineering and electronics.

The Unctad team also found that India’s exports are responsive to changes in global income. A 1% fall in global GDP will lead to a 1.88% decline in India’s exports growth, the study said.

India’s new commerce and industry minister, Anand Sharma, said soon after taking charge that he expects exports to stay flat in fiscal 2010 at $168 billion, which he described as a potential achievement given that global trade is projected to substantially contract.

Commerce secretary Khullar has said he expects external demand to improve towards September or October.

Citigroup, in a report released on Wednesday, said it expects India’s exports to contract 10% in 2009-10. “Given the high base effect (exports rose at an average 35% a month during April-August, 2008), we expect export growth to remain deep in the red until September," Citigroup India economist Rohini Malkani said in the report. “Our full-year estimates of a 10% contraction assume an 18% increase in (the export of) petro products and a 15.3% contraction in non-oil exports."

India’s imports also contracted during May by 39.2% to $16.2 billion, for the sixth month in a row, as oil imports declined 60.6% due to lower crude prices compared with last year. Non-oil imports contracted 25.4% in May, signalling slower economic activity within the country.

The sharp decline in imports narrowed India’s trade deficit to $5.2 billion in May, compared with $11.1 billion in the same month a year ago.

Balance of payments data released by the Reserve Bank of India on Tuesday showed a sharp contraction in trade deficit to $14.6 billion in the March quarter from $22.3 billion a year earlier, resulting in India posting a current account surplus of $4.7 billion in the fourth quarter of 2008-09—the first in two years.

Goldman Sachs said in a report that as India’s trade deficit narrows it expects the current account deficit to be lower at 1.3% of GDP in 2009-10, compared with 2.6% of GDP in the previous year.

PTI contributed to this story.