Opinion - Editorials

Not all rosy on the trade front

Trade data for the period April-July 2007, released by the Commerce Ministry recently, present a mixed picture. Over the four-month span, exports at $46.8 billion were 18.22 per cent higher than the $39.59 billion recorded during the corresponding period in 2006-07. In July alone, they were up by $12.5 billion or 18.5 per cent. Thus, in dollar terms the performance in July was more or less at the same level as in the preceding three months. Against the backdrop of a sharp appreciation in the rupee, the performance so far this year looks creditable and, to a large extent, supports the view that the exporters are demonstrating resilience. The picture, however, changes dramatically when the same set of figures is expressed in rupees. Between April-July 2007, the rate of growth was 5.9 per cent and, in July, a mere 3.1 per cent. The inescapable conclusion is that exporters, though faced with an adverse exchange rate, are not able to raise the value of invoices. Rather than risk a sharp fall in orders, they are taking a hit in their sales turnovers as well as profits. For the economy as a whole, the deleterious consequences of the rupee appreciation are beginning to be felt. There are reports of closures and job losses in certain labour-intensive, export-oriented industries. None of these is of course readily apparent when trade data are expressed in dollars.

In rupee terms, imports grew by 30.65 per cent during April-July and by 20.4 per cent in July alone as compared to 2006-07. The apparent deceleration in July looks more pronounced when the data are expressed in rupees. As against an increase of 17.17 per cent over the four-month period, the increase in July was just 4.74 per cent. Only a break-up of imports into non-oil and oil segments will help in analysing the consequences of the lower import growth rate. A rising non-oil import bill is a sign of heightened economic activity. The merchandise trade deficit has widened to $25.61 billion over April-July. The current account deficit will no doubt be lower, but it is important to remember that India is one of the few emerging economies that have a deficit on both current and trade accounts. Also, the country’s balance of payments has been in surplus only because of positive capital inflows. Given the current turmoil in global financial markets, it would be prudent to reduce such dependence to the extent feasible. A whole range of measures to support the export effort already spelt out by the government, by way of foreign trade policies and subsequent specific packages, become extremely relevant.

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