Oct 11, 2012

Trade gloom and slight rays of hope

Past four months, I came across this statement frequently being quoted by various experts/officials: 

"The exports declined this month, but imports declined more, therefore trade deficit has not been adversely affected."

For once, September data changes it. Exports contracted by 10.8% (over last year, to 23.7 USD Billion) and imports surged by 5.09%. The trade deficit for Sept 2012 is around 18.1 Billion USD, the widest in 11 months. More on September trade data here, here or here. As I write this blog, I see that the data is surprisingly not uploaded on commerce ministry or DGCI&S website. It's the news sites from where I am getting the information! 

I was never comfortable with that italicized statement. Traditionally, we had imports growing at a faster rate than exports, including last year when the imports grew by around 32% compared to exports growth of around 21%. This year, the summary is: 

"For the April-Sept period, exports dipped 6.79% to $ 143.6 billion from $154.1 billion in the same period last year while imports decreased by 4.36% to $ 232.9 billion" - Mint

So, the trade deficit not getting adversely affected was like searching for 'some' or 'any' positive point in the gloomy trade statistics. Now that even this was taken away, I wondered what would optimists say. I found Commerce Secretary's statement interesting (from mint again):

While unveiling trade data for August, commerce secretary S.R. Rao had said that the numbers provided a “slight ray of hope” after a dramatic 14.8% shrinkage in exports in July. “I hope this will give us some confidence that we can make up,” Rao had said, adding that some sectors such as pharmaceuticals, engineering and textiles were showing some sign of improvement.

Well said sir, but the reason for such 'slight rays of hope', in near future, beats me, for the following reasons (as Sept data has proved now):

1. The QE3 by US/Europe will release more money into the global system in coming months, leading to rising commodities prices, inflating our import bill (mainly due to oil imports)

2. Gold imports, tightly pegged to inflationary expectations in India (and fascination to yellow metal), might not come down as expected. Gold alone can push us back by 40 - 80 Billion USD.

3. Exports from India doesn't seem to pick up, as global demand is currently low. You can't push products without demand.

4. Our appetite for oil imports remains unchanged, as we are insulated from global crude price effects to large extent due to subsidies. (even after discounting the recent 'reforms')

The ho-hum solutions being suggested by various export promotion councils, such as to provide exports linked incentives, to provide easy credit for exports/reduction in interest rate, sectoral revival plans, etc, do not address the simple lack of demand. I would, in their place, keep mum.

My slight ray of hope is this:

US/Europe will have slight revival of demand during Christmas shopping season. Hopefully, QE3 might start showing effect after Christmas, leading to some kind of (miraculous) revival of global growth rate, which in turn would lead to demand for Indian exports. And I hope, nothing goes wrong in Eurozone/middle east/China in the meanwhile.

I won't talk about our imports, as that is a separate topic, which needs another blog. The import figure doesn't seem to come down, and it won't, as far as I can see. It's not bad to have higher imports as such, just that, some parts of it (read oil/gold) look bad.