The steady contraction in exports coupled with the import bill inflated to an extent by the weak rupee even in a slowing economy has raised concerns about the current account deficit (CAD), which stood at a worrisome 4.3% of the GDP in 2011-12 and is officially forecast to be 3.5% in the current fiscal.
The steady fall in exports is likely to prompt the government to announce incentives by the weekend to boost shipments.
CAD occurs when a countrys total import of goods, services and transfers is greater than its total export of goods, services and transfers. The CAD stood at 3.9% in the first quarter of this fiscal, much lower than 4.5% in the previous quarter.
The Q2 CAD figure is expected later this month.
A few weeks ago, Crisil said a moderation in import growth could help CAD to be restricted at 3.1% in 2012-13, but a significant widening of the trade deficit since September has now raised fresh concerns on this front.
The demand slowdown in western markets led to Indias exports declining 4.17% in November to $ 22.3 billion while imports grew 6.35% to $41.5 billion.
Pertinently, Standard & Poors on Tuesday said the Indian governments bloated fiscal deficit and heavy debt burden are the most significant rating constraints. The current fiscal deficit target of 4.5% of the GDP of 2014 may be beyond the governments reach, S&P said.
Commerce secretary SR Rao said that although shipments are declining, the contraction has been slightly arrested. There has been a slight improvement... Hopefully, the government will be coming out with a new package for boosting exports in the last quarter which the commerce minister will be announcing towards the end of the week, he said.
He added that the steady rise in crude imports has pushed the import bill to $318.7 billion during April-November 2012 and the rising demand for petroleum products was distressing.
Though the speed of decline is lower than before, it is no reason to be complacent. Global growth is weak and we cant buck the trend. We will have to endure it for some more time, explained Dharmakirti Joshi, chief economist at Crisil.
Oil imports in November increased 16.7 % year-on-year to $14.5 billion while non-oil imports grew 1.5% to $ 27 billion.
Said Biswajit Dhar, director general, Research and Information System for Developing Countries: The government needs to give confidence to exporters and sops alone will not deliver. We need to look at more fundamental issues by identifying the infrastructural bottlenecks and reducing the transaction costs by streamlining procedures.
Analysts noted that the government also needs to work on short-term and medium-term plans by engaging with exporters and iron out the infrastructural and institutional issues as these are getting reflected on the industrial production numbers as well.
The situation in the US and EU has not changed much and the contraction still continues. In April-September, overall exports have declined by 10% compared to same period of previous year. The decline was quite fierce for the EU by 20% and the US by 8%. Combined US and EU exports have declined by almost 16% as compared to previous years, said Apparel Export Promotion Council. chairman A Sakthivel.