Trade Winds

Updated: Nov 4 2003, 05:30am hrs
Amidst all the good news on the economy, the weak performance of exports is one worrying factor. In the first half of 2003-04 exports grew at only 10 per cent in dollar terms, against an appreciating rupee, suggesting even more modest gains. While commodity and country-wise figures arent yet available, the experience of the last fiscal suggests that growth is broad-based across commodities and the fastest growth may well have taken place to Asian destinations. While the debate about the role of global demand and rupee appreciation continues, experience since 2002-03 suggests that Indias exports may have become less exchange rate-sensitive. India may have moved to higher value segments that are less price-sensitive. Alternatively, rupee appreciation may have been neutralised to some extent by productivity improvements.

Despite the deceleration in export growth, the target of one per cent share of global merchandise trade by 2007 now appears unduly conservative and will be attained ahead of schedule. Perhaps the country is not yet adjusted to the idea of good news. Why else have interest rate cuts on rupee export credit been recently extended by another six months to April 2004 Perhaps more significant than export growth is the dollar import growth of 21.42 per cent during April-September. This has been driven by non-oil import growth of 28.02 per cent, signifying revival in industrial growth and perhaps of investments, not to forget the cheaper dollar. Oil imports have only increased by 6.34 per cent. There is no balance of payments management issue here, not with forex reserves inching towards $92 billion. The current account surplus of 2002-03 is unlikely to change into a deficit in 2003-04, notwithstanding the deficit RBI figures show in the first quarter of 2003-04. Since net invisibles continue to increase, at worst the current account surplus may be whittled down in 2003-04. Instead of being an unmitigated disaster, this should indeed be welcome.