The much-maligned rupee depreciation against the dollar has its own advantages. Merchandise exports in October surged an impressive 13.47% to $27.27 billion compared to $24.03 billion in the same month last fiscal. This was the fourth month in a row when exports registered a double-digit growth and highest in last two years. It was way back in October 2011 when exports registered higher growth rate of 23.7%.
Exports have been rising steadily since July mainly on account of rupee depreciation coupled with rise in demand in some of the main markets of US, Europe, as well as Africa and Southeast Asia.
This was in stark contrast to quite a dull run since the beginning of the last fiscal 2012-2013 to June this financial year. Last year, total exports registered a fall of 1.76% at $300.60 billion. Exports, then contracted in May and June this year as well. However, a falling Rupee, which was 13% weaker against the dollar during July-October compared to a year back propelled exports growth rate to double digits since July.
“We are seeing consistent double-digit growth in exports. All major sectors having significant contributions in the export market have shown positive trend … We are confident of reaching the export target (of $325 billion) this fiscal,” commerce secretary SR Rao said here today while releasing the data.
Rao said exports are rising on all major regions of US, Europe, Africa and ASEAN except for South Asia and Latin America, which were marginally low.
Imports, on the other hand, have been falling continuously since June this year. In October, imports declined to $37.82 billion, down 14.5% over $44.24 billion. This was the second month in a row when imports fell by double digits.Thus, the trade balance for October stood at $10.56 billion, almost half of what it was in the same month last year at $20.21 billion, according to data released by the ministry of commerce and industry here today. Month-on month, however, it was higher than $6.7 billion in September, 2013.
The month-on-month decline was partly due to rise in gold imports in October compared to September. In October, gold imports rose to $1.3 billion compared to $0.8 billion in September. However, gold imports in October were down from $6.8 billion a year ago.
Rao attributed fall in gold imports in September to confusion over the Reserve Bank of India's 80:20 scheme for gold imports that led to imports being held up at customs. "The reason behind fall in gold and silver imports in September was confusion over 80:20 issue," Rao said. The RBI has made it mandatory that 20% of imported gold has to be exported through value addition. This is called 80:20 rule.
Total exports during the first seven months of the fiscal through October rose by 6.32% to $179.38 billion compared to $168.71 billion in the same period last fiscal. Cumulative imports stood at $270.06 billion against $280.73 billion, down 3.80% over the corresponding period last year.
Total trade deficit during April-October reached $90.68 billion over $112.03 billion during the corresponding period in 2012-13. The government aims to bring down current account deficit, which includes trade deficit, to $60 billion in 2013-14 against $88 billion in the previous year.
The Rupee depreciation is helping close the trade gap as outbound shipments are rising , following a long period of stagnation up to about June. Hence, it seems the depreciation has proved its merit to fight a soaring trade deficit, which, the government and Reserve Bank of India (RBI) fought hard to contain. In what was a policy decision in 1966 and in 1991, called devaluation of the rupee, is repeated this time as a fall out of market forces, called depreciation of the Indian currency.
According to CRISIL, exports have been rising due to a weak Rupee and rising global demand on the back of gradual recovery in US and Europe. A weaker rupee helps boost exports by raising the relative price competitiveness of Indian goods, particularly in those exports sectors that are not as import intensive, such as textiles and agricultural products.
The rupee depreciation as well as low domestic demand are also pulling down imports.
Non-oil imports in October reached $22.60 billion, which was 22.80% lower than $29.28 billion same month last year. In October, gold and silver imports came down by a whopping 80% to $1.37 billion compared to $6.80 billion, stated director general of foreign trade (DGFT) Anup K. Pujari.
Total non-oil imports during April-October reached $171.96 billion, down 7.43% compared to $185.76 billion during the same period last year. On the other hand, total gold and silver imports during this period stood at $24.5 billion compared to $28.1 billion same period last year due to various curbs imposed by the government.
As a result, the non-oil, non-gold imports this year stood at $147.46 billion compared to $157.66 billion, down by 6.46%.
Thus, one can then say that a lot of import substitution has taken place due to a weaker Rupee. However, it also points to lack of demand for these products in the country. This is buttressed by the fact that industrial growth stood at just 0.1% in the first five months of the current financial year despite the low base of 0.2% in the corresponding period of last financial year.
Oil imports, on the other hand, reached $15.21 billion in October this year, up 1.7% compared to $14.95 billion last year same month. Total oil imports till October grew by 3.3% at $98 billion as against $94.9 billion, according to the data.
International price trends are also partly responsible. The crude oil prices fell to $103 per barrel last week, which was the lowest in last four months. Similarly, coal prices hit a low of $76.45 a tonne this year on July 10, but since then it has risen by 6.5%.
In October exports of agricultural products, engineering goods and electronics showed healthy growth.
“While exports have shown a convincing rebound, the tempo can be sustained and improved by further making Indian products competitive in the global market where green shoots are visible. The Finance Ministry should immediately address the issue of duty drawbacks,” said Anupam Shah, chairman, Engineering Exports Promotion Council (EEPC).
The Federation of Indian Export Organisations (FIEO) projected the trade deficit to be in the range of $140 billion this fiscal, which it said will also ease pressure on the current account deficit (CAD) by bringing it down to $50 billion in 2013-2014.