The key feature of India’s merchandise trade during 2013-14, the summary of which was unveiled last week, was the remarkable decline in the deficit. From a level of $190 billion in 2012-13, deficit in the goods trade was down to nearly $139 million, a decline of over $51 billion. This narrowing of the trade deficit was only slightly less dramatic than the stupendous increase witnessed in 2011-12, when the trade deficit had expanded by $66 billion. As a result of this decline, merchandise trade deficit, which was hovering around an all time high of nearly 11% of GDP in 2012-13, is expected to be a touch over 8% in the last fiscal. Since the widening of the trade deficit was the most significant cause of the bulge in the CAD, the improvement on the merchandise trade balance in 2013-14 could give the finance ministry a few more options to play with.
However, the feel-good factor regarding the trade performance in the previous fiscal hardly extends beyond the lowering of the deficit. The reduction in trade deficit has been caused largely by the lowering of imports by 8.1% as compared to 2012-13. Exports have expanded, but by a modest 4%. The more disconcerting aspect of the export performance is that after having expanded by double-digits in the second quarter of the year (as compared with the corresponding period in 2012-13), export growth not only fell away in the second half, the two closing months of the previous financial year witnessed negative growth rates.
This performance on the export front marks a culmination of a phase in which much was expected from the exporters, but little was delivered. Following the adoption of the Foreign Trade Policy 2009-14, the commerce ministry had developed a “Strategy for Doubling Exports in the Next Three Years (2011-12 to 2013-14)”. The focus of this strategy was to push exports closer to the $500 billion mark by 2013-14, a level which would help in keeping the ratio of trade deficit to GDP to below 10%. There was little that one could fault with this strategy, for it envisaged export push to come on the back of a strong performance from the critical industrial sectors, particularly the engineering and the chemical industries. However, with the industrial sectors not taking-off as stated in the strategy paper, the commerce ministry had a fresh look at the export targets less than a year