Exports shrink the most in two decades

Imports see biggest contraction since January 1992.

Imports and exports shrank by record levels in February 2009 on continuing weak global demand and lower petroleum product prices. Experts say the trend will continue for a few more months, with major markets like US, Europe and Japan likely to stay in recession.

Data released by the commerce ministry showed that exports dipped 21.7 per cent to $11.91 billion in February 2009 — the sharpest contraction in about two decades and the fifth consecutive month that exports have been in the negative territory.

Imports declined by a similar margin to $16.82 billion, the steepest contraction in imports during a month since January 1992.

India is now likely to miss the government’s scaled-down export target of $175 billion for 2008-09. This is because for the 11 months ending February 2009, exports expanded 7.3 per cent to $156.6 billion and imports rose 19.1 per cent to $271.7 billion (see table). To meet the target, exports will now have to grow by 6.66 per cent in March, which looks unlikely.

“The dip in exports is unwelcome, but not surprising. The current global economic environment is perhaps the worst in decades,” said a note prepared by Sherman Chan, economist with Moody’s Economy.com.
 

TRADE-OFF February exports and imports
	Feb 08	Feb 09	April-Feb  07-08	April-Feb  08-09
In $
Export (% growth)	43.6	-21.7	26.73	7.3
Import (% growth)	47.06	-23.3	33	19.1
In Rs
Export (% growth)	29.21	-3	12.13	20.3
Import (% growth)	32.32	-4.9	17.68	33.4

With the pace of imports falling in tandem with exports, India’s trade deficit (the difference between exports and imports) stood at $4.91 billion in February, an annual dip of about 27 per cent. In the April 2008 to February 2009 period, the trade deficit expanded 40.2 per cent to $ 115 billion.

Economists are concerned about the contraction in imports because it signifies waning domestic demand. “Fall in crude oil prices is a key reason for the contraction in imports. Moreover, this dip seems to have been worsened by lower demand for goods by Indian factories. Due to the uncertain outlook for the economy, most entrepreneurs have postponed expansion plans, resulting in lower imports of capital goods and machinery,” said Shubhada Rao, chief economist, YES Bank.

India’s oil import bill almost halved to $4 billion against $7.71 billion in the same month a year ago. Non-oil imports, which include capital goods as well as raw material used by Indian industry, also contracted by a tenth in February, and stood at $12.77 billion against $14.22 billion in the same month of 2008.

“Demand in India may have softened, which cut import consumption, but an equally important factor that has contributed to the tumble in the headline import figure is the massive fall in global commodity prices,” Chan’s note said.

Going forward, economists expect a sharper fall in imports, which could cause the trade deficit to shrink in 2009-10.

“We expect the uncertainty in economic outlook to continue till about October. Factories may not add capacity to their existing infrastructure, resulting in less demand. So, we expect a steeper fall in imports in the coming months,” Rao added.

According to Chan, unless the US and European economies recover, Indian exporters will continue to see tough times. “The government will continue to be under pressure to support struggling export-oriented manufacturers in the coming months,” she said in the note.