After a rise in November exports again contract in December

Trade deficit narrowed to $9.4 bn in December from $10.2 bn a year ago

Hopes for a sustained revival in merchandise exports were dashed by the data for December showing outbound shipments fell 3.8 per cent from the same month a year before, $25.4 billion against $26.4 bn earlier.

This was due to a fall in the value of sales of refined petroleum products, continued slowing in Europe and weak retail sales in the US, official data showed on Thursday.

Exports had contracted in October by about five per cent but then rose 7.3 per cent in November from a year earlier.

“I would not like to comment on monthly growth. I am not worried about the dips and rises. The overall mood is good,” Commerce and Industry Minister Nirmala Sitharaman said in Jaipur.

Imports in December also fell 4.8 per cent to $34.8 bn, compared to $36.6 bn in the corresponding period of a year earlier. Inbound shipment cost of crude oil came down due to falling global rates and there was a not so significant rise in gold imports.

As a result, after quite a while, the trade deficit narrowed in December, to $9.4 bn, lowest in the current financial year, from $10.2 bn in December 2013. It had been as high as $16.9 bn in November. This was the first time in the current financial year that the trade deficit came down to a single digit.

Though this would augur well for the current account deficit (CAD), which rose to 2.1 per cent of gross domestic product in the second quarter (July-September) of the current financial year against 1.2 per cent in the first quarter and 1.7 per cent in the second quarter of 2013-14, the contraction in exports is not considered a good sign for the economy. Ideally, the trade deficit should reduce from a rise in exports and a reduction of imports in commodities considered non-essential.

Economists, however, warned the CAD could increase in the year's third quarter (October-December), compared to the second quarter, due to high gold imports in October and November.

Hit hard by declining prices, petroleum product exports plunged 21.2 per cent at $3.8 bn in December against $4.9 bn in the year-ago period. Petro products generally run neck-and-neck with engineering ones for the number one slot in the export basket. However, engineering exports were way ahead at $6.9 bn in December, up 20.5 per cent over the $5.7 bn a year before.

A host of labour-intensive items saw a contraction in exports — gems and jewellery (though marginally by 1.1 per cent at $2.7 bn), cotton yarn, fabrics (2.1 per cent at $916 million), manmade yarn, fabrics (0.6 per cent at $441 mn), spices (a fall of 5.3 per cent at $192 mn).

“These are all labour-intensive sectors and their slowdown will have a bearing on employment,” said Rafeeque Ahmed, president, Federation of Indian Export Organisations.

YES Bank chief economist Shubhada Rao said given the attenuation  in oil and agri-commodity prices, it would be prudential to shift the export thrust towards value-added manufacturing goods like textiles, pharma, chemicals, leather, handicrafts  and engineering goods; which have been gaining traction in recent years.

“Government’s emphasis on debottlenecking of supply side linkages through speedy reforms, in conjunction with easing interest rate cycle, point towards a near-term resuscitation in manufacturing and investment activity which are expected to carry the export momentum,” she said.

Ahmed noted leather and its products, with double-digit growth in November, grew only moderately in December, up only 0.7 per cent to $511 bn in December. The contraction in exports, he thought, was due to a decline in demand in many markets, including emerging countries, coupled with softening of the prices of crude oil, commodities and metals.

According to recent data, retail sales in America fell 0.9 per cent in December from the previous month.