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Trade: After 33% decline in April, exports nosedive by 30% in May

	June 08, 2009

The global downturn has taken the wind out of the sails of India's exports .Overseas sales of Indian goods have contracted for the eighth month running during May, and stood at nearly $10.9 billion, which is an annual dip of 30 per cent. The May numbers are the initial estimates available with the commerce ministry, while the real extent of exports will be known by July 1. The latest numbers are a notch better than the 33.2 per cent contraction ($10.74 billion) seen in the previous month, but far worse than the 27.3 per cent ($15,58 billion) expansion seen in May 2008.



In 2008-09, exports expanded by 3.4 per cent — the lowest since 2000-01 — and stood at $168.7 billion. The contraction in exports is expected to continue till about September. While commerce ministry expects flat growth in exports during 2009-10, exporters claim that they can manage $200 billion worth of exports, if Government supports them with incentives in the coming budget and foreign trade policy.



With a shrinking overseas market, exporters from countries like China, or South-East Asian nations are offering heavy discounts. Indian exporters are also asking for Government help so as to make their products competitive in the international market.



After meeting Finance Minister Pranab Mukherjee, exporters met Commerce Minister Anand Sharma with their wish list. Their demands broadly include exemption from taxes and duties, cheaper interest rates for export credit and enhanced export incentives.



Assuring that the Government will take adequate steps to mitigate this slowdown, Commerce Minister Anand Sharma said the Government will take additional steps in July’s budget and in the foreign trade policy, to be announced in August, to help alleviate some of the pain being felt the sector, the worst victim in India of the global recession.

He would seek specific thrust and incentives for handlooms, textiles, leather and plantation industries, as also for labour-intensive manufacturing units. He would pitch for sector-specific spurs to help domestic exporters and manufacturers bear the brunt of decline in overseas and domestic demand.

Apart from fiscal incentives, exporters have also asked for constitution of an “Exports Facilitation Board” under the chairmanship of Prime Minister to monitor the slowdown. The Federation of Indian Export Organisations today proposed that this board should have the Commerce Minister, Finance Minister, Textile Minister, Surface Transport Minister, Minister for Shipping, Minister for Labour, as members, along with the FIEO president and other prominent exporters.

The Government is also looking at ways to incentivise exporters to explore new markets in Latin America, Africa, Central and Eastern Europe, which have not been as affected by the global slowdown as the traditional markets in the US, the EU and Japan.

New Policy package needed to reverse exports decline

Exports fell more than 33 per cent for the second consecutive month in April 2009 and dip continued in May as well, but Imports fell even more sharply, by 37 per cent, mainly because of a fall in oil prices. With imports declining at a faster rate than exports, the trade deficit — the difference between the two — narrowed 50 per cent to $5 billion in April 2009. This is the one silver lining in an otherwise bleak scenario; the decline in the trade deficit will reduce the pressure on the current account (which includes trade in services, where India enjoys a surplus). This means that the risk of a balance of payments crisis remains low, even if capital inflows do not revert to their pre-crisis levels.

This is also the second consecutive month the contraction in imports has exceeded the fall in exports. Oil imports, which account for nearly a fourth of India’s import bill, declined 58 per cent to $3.6 billion against $8.7 billion in the same month last year.

Non-oil imports, which comprise capital goods and raw materials used by India Inc, also contracted by almost a fourth, clocking $12 billion against $16 billion in April 2009.The decline in other imports also reflects price drops in items like fertiliser, copper and the like, but also the slowdown in various sectors of the economy. Exporters are in for a prolonged period of pain, as their major markets are expected to remain in recessionary conditions until next year.

The problems that exporters have to deal with are compounded by the fact that there is precious little that the Government can do for them. Virtually all export promotion and incentive schemes are production-linked. If there is no production, there are no subsidies available to producers. The cost of credit to small and medium businesses (which account for the bulk of exports) is still very high, but it would seem that there is nothing that anyone can do about it if banks see lending to the SME sector as risky. Promises by the Ministry of Commerce to come to the rescue of beleaguered exporters must, therefore, be taken with a pinch of salt.

Direction of trade

A quick analysis of India’s direction of exports in the April-December 2008-09 period (the latest aggregate data available) vis-a-vis the corresponding previous period indicate that the share of key import and export products in India’s total trade has remained unchanged, even as volumes have declined sharply due to the crisis.

The relative share of EU 27 in India’s total exports remained the same, and the ground lost in the India-North America (about 1.5 per cent) and India-NE Asia (about 2 per cent) exports has been compensated by increased Indian exports to the West Asian and North African (WANA) countries. Moody’s analysis noted that while the sharper decline in imports helped contain the trade deficit, it was the lower global oil prices compared to a year ago that played a role in keeping overall import payments in check, which has started to reverse in the past few weeks.

At times like these, price competition for foreign orders is likely to get more severe. In the interest of creating sustainable competitive advantages, the “sector-specific spurs” promised by the New Minster may have to focus on providing enabling conditions for efficiency and productivity gains, and minimising transaction costs.

Analysts say the latest trade data reflects continued weakness in the global economy. But they predict that export growth will hit positive territory in two or three months.

India notifies duty reduction for 450 items from Mercosur

India has notified reduction in customs duties on import of 450 items, including chemicals, petrochemicals, machine tools and electrical equipment, from Mercosur countries under a preferential trade agreement with the South American nations. Mercosur bloc consists of four countries of South America - Argentina, Brazil, Paraguay and Uruguay. Venezuela is in the process of becoming a full-fledged member of the bloc soon.



As per the agreement, the two sides are committed to give preferential access to bulk of their trade items.



The Central Board of Excise and Customs (CBEC) today issued a notification listing the import duty concession ranging from 10 to 100 per cent on the 450 items.



As part of the agreement, Mercosur countries have agreed to give preferential access to about 450 items from India, which includes split air-conditioner systems, refrigerators, leather and footwear, silk, cotton, meat, chemicals and glass.



The agreement will provide a significant boost to bilateral trade and investment flows. The pact will also mark the first step towards the creation of a Free Trade Area between Mercosur and India.