That India’s trade deficit narrowed to $13.4 billion in October from $14.2 billion in September is of little consolation since much of it was driven by a 19% yoy fall in crude oil imports which, in turn, was a result of the sharp fall in prices over the last few months. The trade data is actually quite depressing given how exports have contracted 5% yoy, and also how the growth of non-oil, non-gold imports has slipped to 5.5% yoy. Indeed, that these have been driven down by a sharp 15% yoy fall in imports of project goods is worrying at a time when the economy is supposed to be in recovery mode.
On the exports front, some part of the fall can be attributed to the lower prices of crude oil—between April and October 2014, growth in petroleum exports was roughly half of what it was in the same period in 2013. But it is also true that key segments such as engineering goods, pharmaceuticals, textiles, and gems and jewellery have all contracted. That this should happen at a time when the rupee is weakening—it was around 54 to the dollar in May 2013 as compared to around 61 right now—is attributable to the continuing weakness in the global economy. While the US is recovering well, Japan has now officially slipped into a recession and China is slowing down—the October PMI showed output and new business expanded at the slowest pace in five months. The EU growth forecast for 2015 has been lowered to 0.8% from 1.2% earlier and that is probably why the WTO has trimmed its world trade growth in 2014 to 3.1% from 4.7% earlier.
Much of this is reflected in recent data; India’s exports to America in the six months to September accounted for a much bigger share of the country’s total exports—19.5% compared with 17.2% in FY14. On the other hand, exports to the EU accounted for a slightly smaller share of 17.8% versus 18.6% in FY14. The Asian countries, by and large, remain a good hunting ground for Indian exporters; except for China, probably because of lower imports of iron ore by that country. Since the weakness in the global economy isn’t going to go away quickly—indeed, it may get worse—India needs to figure out how it can get more competitive. In sectors like textiles, for instance, higher wages than in competing countries like Bangladesh have meant India has lost its advantage.