The numbers for merchandise exports and imports for February, released on Wednesday, show that in US dollar terms exports declined by 21.7 per cent from February 2008, the sharpest year-on-year decline yet. It is cold comfort that this is modest, when compared to the declines witnessed in the exports of some other Asian countries. The harsh fact is that this is lost business and lost jobs and, it would seem, something that the government or anyone else can do very little about in the short term. Given the virtual certainty that the US, the Europe Union and Japan will see their economies contract during 2009, the poor export performance will persist until at least September. For the period April-February 2008-09, exports added up to about $157 billion, which means that for the full financial year they will be close to the revised target of $175 billion, though significantly short of the initial target of $200 billion. In rupee terms, the decline was, of course, much smaller, only 3 per cent. The massive depreciation in the rupee over the course of the year provided some relief to exporters by raising rupee realisations and shoring up margins. But the impact of slowing demand in the major export destinations is clearly the dominant reality.
The other striking feature of the February numbers is the decline in imports. In US dollar terms, imports declined by 23.3 per cent, the first negative movement this year. Oil and commodity prices have been falling for some months now, so prices alone cannot explain the transition from positive to negative growth. This, presumably, reflects a decline in volumes as well. Since non-oil imports are mostly intermediate goods feeding into industrial production, this development presages a relatively sharp decline in industrial production during either February, the numbers for which will be published next week, or March. In some ways, therefore, this is even worse news than the sharp export drop. Both the export and import numbers reinforce the gloomy forecast made by the World Trade Organisation, that global trade will decline by 9 per cent during 2009, the first decline since the institution was established in 1995.
From India’s perspective, the only positive implication of these developments is that the trade deficit is narrower, declining to $4.9 billion from $6.7 billion in February 2008. Given the emergence of a deficit on the capital account in the October-December quarter, as revealed by the balance of payments data published earlier in the week, anything that helps to narrow the current account deficit is welcome. Persistent deficits on both the current and capital accounts will lead to a depletion of foreign exchange reserves, in turn worsening the risk perceptions of the economy. The situation is still reasonably comfortable on that front, but this is an eventuality that must be given some thought. Reinforcing these concerns is the persistent fear that more countries will increase their levels of protection against imports, as domestic interest groups grow more restive about job losses. Despite the emphasis in the ongoing G-20 summit on preventing this, the signs that it will happen are already in the air. Of course, India would do well to remember that it ran a trade deficit even during its most protectionist phase, so it should know that such a move may be of little benefit. But, to the extent that it goes ahead in other countries, it will be another blow to prospects of a recovery in exports.