Exports may halve in FY13, warns Khullar

Exports may halve in FY13, warns Khullar

New Delhi: India’s export growth may nearly halve in 2012-13 from last year’s level, with Indian goods likely to face serious demand constraints in key markets such as the European Union and the US.

“Latest numbers from the US are not as encouraging as they were a month ago. The situation in Europe is disheartening,"Khullar said.

Merchandise exports grew 3.2% at $24.5 billion (around 1.3 trillion today) in the first month of the current fiscal year from a year earlier, while growth in merchandise imports slowed to 3.8% at $37.9 billion during the same month. The trade deficit in April stood at $13.4 billion, as imports of gold and precious metals contracted while imports of petroleum products slowed.

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The commerce ministry has set a target of doubling exports to $500 billion by 2014-15 from the $250 billion level attained in 2010-11. However, Khullar said that target now looks very difficult to achieve.

During the month, imports of gold and silver contracted 33%, while pearl and precious metals declined 63.3%. Imports of petroleum products slowed to a growth pace of 7%.

The decline in imports of gold and precious metals in April could be because of the disruption caused by strikes by jewellery shop owners after finance minister Pranab Mukherjee imposed a 1% excise duty on sale of unbranded jewellery in the budget in March. Subsequently, Mukherjee announced in Parliament during a discussion on the Finance Bill that he is withdrawing the proposal.

Khullar said pressure on the trade deficit will be lower this year if the present trend of slower growth in imports continues. “As long as there is no price shock from petroleum products, 7% import demand is normal," he said. When the first-quarter trade numbers are announced in July, one would be able to judge whether the nominal exchange rate along with a decline in domestic inflation and global conditions translate into a choke on imports, he said. “It is too early to say that, but my guess is you are looking at that a couple of months down the road," he said.

Khullar said that if the trade deficit continues at around $13 billion a month for the rest of the fiscal year, the annual trade gap will be around $160 billion in 2012-13, less than the $185 billion in the previous fiscal year. He said the government has to wait for a couple of months to see whether the deceleration in imports continues.

M. Rafeeque Ahmed, president of the Federation of Indian Export Organisations, said the impact of global contraction in trade is now being felt by India as well. “The situation is more grim now as in the past periods of slowdown, the emerging and developing economies exhibited positive growth, helping us to increase our exports through market diversification strategy focusing on Latin America, Africa and Asia. The slowdown in new markets will be more obvious in next few months," he said.

Exports of cotton and textile products contracted during the month. Khullar said that while the contraction in the import of cotton is due to the base effect, there is a genuine demand problem in the case of ready-made garments. A supplement to the foreign trade policy is expected to be released in June. Khullar indicated that the textile industry may get some reprieve in the policy. “The textile industry may need some help," he said.