The latest trade data from the commerce ministry for the month of July brings mixed news. While exports registered positive growth for the ninth consecutive month, the rate of growth in July, at 13.2%, is significantly lower than the around 30% growth registered in each of the first three months of this fiscal year. Some of this decline may simply be the erosion of the base effect. Remember that exports had done very poorly until June 2009, picking up somewhat thereafter. But there may also be factors beyond the base effect. India?s major export markets are still the US, EU and Japan, and the post-crisis recovery in these markets has been very slow. Japan is still stagnant. In the EU, Germany may finally have broken into positive growth territory, but the rest of the region?s major economies continue to struggle, with many countries still weighed down by burgeoning debt and massive fiscal deficits. Much of Europe cannot afford any more stimulus, and expenditure cuts may take a toll on growth for the remainder of this year, and even beyond. The US has shown some signs of recovery but as the fiscal stimulus wears down, hopes of a rapid recovery are fading. In a nutshell, it is not unreasonable to expect protracted slowdown in India?s major export markets. And that cannot be good news for Indian exporters.
However, Indian exports have made some headway in alternative markets in emerging economies across Latin America, Africa and Asia since November 2009. There remains a case for Indian exporters to continue to explore opportunities in these markets, which are still registering reasonable growth. India?s exports to China, for example, still consist overwhelmingly of iron ore (more than 50%). This is a market that other exporters need to get a foothold in. Of course, non-tariff barriers on the Chinese side are a problem for Indian pharma, IT and even agriculture. Exporters should continue to lobby the government on this front (regarding China and other countries), rather than asking for cash sops or other subsidies. On the other side of the trade equation, imports continued to grow impressively, by 34.3%, in July. While this has the effect of widening the trade deficit, it is a sign of continued strength and momentum in the domestic growth story. That has to be good news. And we are still getting enough capital flows to bridge the gap quite easily.