Base effect behind exports jump

India managed to close the external trade ledger for 2009-10 with a better export performance than anticipated; at $176.574 billion, export earnings were down by a mere 4.7%.

Against the backdrop of feeble global recovery, the generally appreciating rupee and the setback during the first half, even a target of $170 billion appeared ambitious.

But, the reversal of the fortunes in the October-March period and , especially, the double-digit spurt in the final quarter, helped push the value of exports to a respectable level in the last fiscal.
To be sure, statistics also came to our rescue. In March 2010, exports were up by a staggering 54.1%, thanks to the depressed figure a year ago.

Compared with March 2008, that is, over the two-year period, the growth rate for the latest month works out to 15.4%.

Similarly, for February 2010, the year-on-year jump was a impressive 34.8% but over March 2008, the increase is much smaller at 6.5%.

In January 2010, the incremental spurt was 11.5%  on a year-on-year basis but, compared with what it was during the same month of 2008, there is, in fact, a decline of 3.7% now.

Broadly, the trend in imports also reflects that in exports, with our own slowing economy and softening oil prices, impacting on the value of imports in the last fiscal.

For the year as a whole, import bill was lower by 8.2%, with oil imports down by 8.7%  and non-oil imports by 8%. But, for March 2010, import demand was keen which is reflected in the 67.1%  rise in imports, with both oil and non-oil imports surging by 85.2%  and 61%, respectively.

Seen in perspective, exports which had recorded an annual growth rate of over 20% in each of the three years ending 2007-08, had flagged in 2008-09, with a rise of mere 13.7%. But the worst was to follow in the following year when there was an absolute decline.
The ability of our export earnings to pay for imports also came under pressure in recent years, with the export-import ratio dropping from over 69% in 2005-06 to 61% in 2008-09.

In the last fiscal year, though the ratio had shown an improvement at 63.4%, essentially, the ratio has been deteriorating of late. No wonder then, that the trade deficit which was $27.981 billion in 2004-05 had crossed the $100 billion -mark to $118.401 billion in 2008-09. In the next year too, despite some contraction, the trade gap remained sizeable at $102.106 million.

Despite the widening imbalance in foreign trade, the import cover - that is, the number of months of imports that can be financed by our foreign exchange reserves - is very comfortable, thanks to invisible receipts and substantial capital flows. For 2009-10, the import cover stood at 11 months; though less than the preceding year’s 11.5% and the 2007-08 figure of 14.3% , it is much above the norm of five to six months.