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| Arresting the decline | | Lower crude prices exaggerate the fall in exports |
| Business Standard / New Delhi Aug 21, 2009, 00:38 IST |
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The data put out by the ministry of commerce show a continuing decline in exports for July. This suggests that the worst is not over for the exporting community. Exports have now fallen for the tenth month in a row, compared to the same month last year. At $12.5 billion, July exports were 26 per cent lower than they were in the same period last year. With the fall in imports even greater at 36 per cent, though, the trade deficit for the first four months of the year has improved — to $6.2 billion, from $9.1 billion in the 2008 period. None of this is unexpected, given what is happening in the global economy. A few facts, however, need to be kept in mind. For one, the decline is getting arrested, almost in sync with the improvement in the world economic tempo. So, exports were $12.7 billion in December 2008 and fell to $10.7 billion by April 2009. They rose to $11 billion in May, to $12.8 billion in June and are slightly lower at $12.5 billion in July. Some of the fluctuation is because of seasonal variations (April, for instance, is a slow month); but at the very least exports have stopped falling from month to month, given that the figure for July is almost the same as for last December. Of course, given the uncertainty of the world economic situation, a quick export upswing is unlikely.
It is important to examine the exports data for the impact of price fluctuations. Trade data at a disaggregated level come out with a huge time lag, but it should be apparent that a significant part of the decline in both imports and exports that is being reported is on account of the fall in commodity prices. In 2007-08, for instance, petroleum and iron ore exports were around a fifth of the country’s exports basket. The prices of both commodities have fallen dramatically in the last one year. Adjust for just this element, and a back-of-the-envelope calculation would suggest that, in dollar terms, export growth in the first four months of the year would have fallen by only 23 per cent over last year, instead of the 33 per cent that the commerce ministry’s raw numbers indicate. That is not good news, but it is better than what has been put out.
Besides, sectors like gems and jewellery and even apparel are showing signs of revival, though engineering exports have some way to go before they stabilise. A seasonal adjustment of the export data supports the thesis of a mild recovery. Since exports grew quite strongly till about July last year, the base effect should also ensure that the data in the months to come start improving, in terms of the rate of decline. By December, if current trends persist, the decline in trade numbers may well have ended. Meanwhile, there is a strong case for the commerce ministry scaling up its statistical capabilities, so that it can put out numbers that are more reflective of reality and therefore a more reliable guide for policy responses.
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