Dashing hopes

Implications of a steep fall in non-oil, non-gold imports

India's merchandise trade numbers, which came out early this week, continued to be depressing. They offered no sign of a revival either in India's domestic demand or in its export markets. Exports declined in November, for the twelfth successive month, by 24 per cent and imports too fell by a higher margin of 30 per cent. The trade deficit, expectedly, has shrunk by 40 per cent and has indeed seen a steady decline over the past few months. For the April-November period of 2015-16, the trade deficit is down to $87 billion, a drop of 15 per cent over the same months of 2014-15. This is the outcome of a worrying decline of 18 per cent in cumulative exports for this period and a drop of 17 per cent in cumulative imports.

These numbers may be reassuring for India's balance of payments management in the current year - the current account deficit is likely to remain within one per cent of gross domestic product or GDP, which can be funded through total foreign investment flows with relative ease. But the underlying trends behind the foreign trade numbers for November are a cause for concern for the domestic economy. For instance, India's non-oil, non-gold imports, which reflect domestic demand and the state of industrial recovery, fell by a whopping 27 per cent in November. In October, the import decline in this category was only half a per cent, reflecting perhaps the sharp recovery in industrial growth numbers for that month. If the sharp decline in November's non-gold, non-oil imports is any indication, the prospects of a revival in domestic demand appear quite bleak. Whatever may be the benefits arising out of a fall in prices of oil and gold, a four per cent drop in non-gold, non-oil imports in the first eight months of the year does not augur well for the economy.

An equally worrying sign is the performance of India's key export sectors. Engineering goods, gems and jewellery and textiles have seen declines ranging from 18 to 29 per cent. While weakness in global demand is certainly a major reason for this, the adverse impact on the employment market is likely to get worse over time. For India Inc, this would be one more pain point to deal with apart from the stress it is undergoing because of low earnings growth in the last few quarters. So far during the current year, a stable rupee even when the dollar has been gaining in strength has only made Indian manufacturers' challenge in the exports markets even more daunting. In the last week, the rupee has depreciated a little, raising some hope for the beleaguered exports sector. That seems to be its only hope now, given the fact that India's exports markets are yet to see any significant revival in demand and the government has made little effort in expediting either free trade agreements with its trading partners or stepping up initiatives for India to join the emerging trade arrangements that will bring under their ambit its traditional export markets. Without such policy support, India's exports outlook appears as bleak as the November trade numbers have shown.