Global economic meltdown in general and recession in the United States and European Union —- our major trading partners —- in particular, have impacted severely Indian’s export effort during 2008-09, with the growth rate decelerating to an abysmally low 3.4%.
But our own spluttering economy exhibited a weak appetite for imports too. This, coupled with virtually steady crude prices —- the two-way movements nearly cancelling out each other —- resulted in a pronounced slackening in the tempo of imports. From more than 35% in 2007-08, the incremental rate fell by more than half to a mere 14.3% during the following year.
The widely disparate rates of growth in exports and imports in the last fiscal led to a sharp increase in the trade deficit, which for the first time soared past the $100-billion mark to stand at a worrisome $119.055 billion.
In March 2009, exports dipped by a whopping 33.3% —- the largest since exports growth plunged into a negative territory in October 2008; with this track record, India has the dubious distinction of posting an absolute decline in exports in every month during the second half of 2008-09 vis-a-vis the same month of the preceding year.
However, domestic woes also meant a serendipity of sorts in that, during this month, imports too contracted by as much as 34% with oil imports plunging by 58.1% and non-oil imports by 18.9%. In the event, the trade gap, at $4045 million, was substantially lower than what it was in March 2008 — $6320 million.
The government had fixed an export target of $200 billion for the last fiscal; this was pruned to $175 billion in the wake of world-wide downtrend in economic activity.
Now, with the tally standing at $169 billion, even the revised target has proved elusive. Broadly, the setback stemmed from a poor performance in textiles, gems & jewellery, agro-based and allied products, ores and mineral and leather products.
The sluggish pace of import growth too stemmed from an under-performing economy and, the considerable softening in the prices of the Indian basket of crude in the second half of 2008-09 after ruling stridently bullish in the first six months.
In fact, the average price for our crude, at $82.72 per barrel, last year was only 3.8% higher than the annual average price of $79.66 during 2007-08.
For the year as a whole, the growth rate in oil imports slowed down to 16.9% from 39.5% in 2007-08. Domestic recession was reflected in import rate deceleration to only 13.2% from nearly 34% in respect of non-oil imports, with bullion, electronics and transport equipment bearing the brunt.
In general terms, the showing in exports and imports during 2008-09 was in conformity with expectations. Still, the macro aspects of our foreign trade should engender concern.
The ever-rising scale of the trade deficit indicates the chronic inability of our exports to pay for our imports; rather, the import-purchasing power of exports is diminishing; this ratio was nearly 75% in 2004-05 and it has declined to 58.6% in 2008-09.
The import-cover —- that is, the number of months of imports that could be financed by the foreign exchange reserves at our disposal, other than gold and SDRs —- has also fallen sharply in the last fiscal to 10.1 months from over 14 months in 2007-08.
The share of exports to the gross domestic product in nominal terms at market prices has risen marginally to 14.1% during 2008-09 from the preceding year’s 13.9%, despite the lackluster export performance.
This improvement is statistical in that, while in rupee terms, exports grew by 16.9% as against 14.7% in 2007-08, the pace of spurt in GDP was only fractionally better at 14.9% compared with 14.4%.
On the other hand, the imports/GDP ratio was on the ascendant, jumping to 24.1% last year from 21.4%. This ratio was as low as 15.9% in 2004-05.
