New Delhi: India’s merchandise exports contracted for the third consecutive month in February by a record 15.02% to $21.5 billion, setting alarm bells ringing in the commerce ministry, which decided to release the much-delayed five-yearly foreign trade policy (FTP) in the last week of March.

FTP expired in March last year and a new policy had been expected to be put in place quickly after the Narendra Modi government came to power in May. However, the finance ministry’s reluctance to give sizable funds for export sops forced the commerce ministry to delay it to the next fiscal year.

While the ministry is still not happy with the allocations, which usually come as revenue forgone and not as actual budget outlays, it has no option but to announce the policy before the year that starts on 1 April.

“The FTP will be released between 23 and 27 March depending on the availability of the commerce minister (Nirmala Sitharaman)," a commerce ministry official said, requesting anonymity.

The ministry on Thursday reduced the number of mandatory documents required for import and export of goods to three in each case from 10 at present. The move is expected to lead to reduction in transaction cost and time.

The government is striving to get the country’s ease of doing business ranking to below 50 within next three years from its current ranking of 142. The delay in the announcement of FTP has held up reforms that the commerce ministry has finalized for exporters, Mint had reported on 1 January.

Merchandise imports shrank 15.66% to $28.4 billion in February, leading trade deficit to drop to a 17-month low of $6.8 billion, according to the data released by the commerce ministry on Friday.

Net services exports also contracted by 0.4% to $6.5 billion in January, data released by the Reserve Bank of India on Friday showed.

Even though the US economy is doing better than expected, uncertainty in the euro zone due to the threat of Greece exiting the economic union have affected India’s exports.

The International Monetary Fund on Wednesday said external risks to the Indian economy emanate from a prolonged period of weak global growth, which could dampen Indian exports, apart from any unexpected developments in the course of US monetary policy normalization, particularly against the backdrop of recent large capital inflows.

India’s current account deficit (CAD) narrowed to 1.6% of GDP in the quarter ended 31 December, compared with 2% of GDP in the previous quarter, as net services exports rose and capital outflows fell. The Economic Survey has projected CAD at 1.3% of GDP in 2014-15 and less than 1% of GDP in 2015-16, assuming a further moderation in the average annual price of crude petroleum and other products.

Expressing his disappointment over the trade data, M. Rafeeque Ahmed, president of the Federation of Indian Export Organisations, said a contraction in global demand, lowering of prices of metals and commodities as well as volatility in exchange rates are largely responsible for the dismal performance.

“Indian exporters are losing out particularly to China, which has a fixed exchange rate against the euro and other currencies while the Indian rupee is fast fluctuating except against the US dollar," he said. “This partly explains 48% growth in China’s exports in February."

In the past two months, the rupee has appreciated 10-12% based on real effective exchange rate, which has blunted India’s edge in exports.

FTP may be effective from 1 April so as to provide a long-term stable regime for overseas shipments and immediately introduce interest subvention for the exporters, Ahmed said.

The sharp contraction in merchandise exports in February underscores the weak demand for Indian exports in the context of sluggish growth of global economic activity, said Aditi Nayar, senior economist at Icra Ltd, a ratings agency.

“Curtailed demand for Indian exports remains a risk factor that may temper the growth of Indian economic activity going ahead," she added.

In February, except textiles which grew at 8.65%, all major exports such as gems and jewellery (minus 3.5%), pharmaceuticals (minus 0.1%), engineering goods (minus 0.76%), petroleum products (minus 54.56%) contracted.

Among major import items, petroleum products (minus 55.49%), chemicals (minus 6.9%), pearls (minus 23.1%) contracted, while imports of capital goods such as machinery equipments and transport equipments grew at 10.1% and 19.8%, respectively, signalling a revival in domestic demand. Gold imports shot up 48.8% to nearly $2 billion during the month on easier import norms.

The government eased gold imports in November by removing a restriction that required traders to export 20% of the precious metal they bought overseas, a move that had been aimed at cutting the CAD.

The so-called 20:80 norm was introduced in 2013 together with a duty of 10% at a time when the deficit had widened to a record and gold imports had been surging.