In dollar terms, exports declined by 33.3 per cent over March 2008, the largest monthly decline yet. For the year as a whole, exports came in at $168.7 billion, significantly short of the original target of $200 billion and also below the revised range of $170-175 billion.
Interestingly, this still represents a 3.4 per cent increase over 2007-08, because of the strong performance during the first half of the year. The contrast between the acceleration during the first half and the decline during the second could not be more striking.
In rupee terms, meanwhile, exports during March 2009 declined by only 15.3 per cent, reflecting the depreciation of the rupee. Currency movements have been buffering exporters to some extent by allowing higher rupee realisations for the given volumes, but it now appears that rupee margins will come under increasing pressure, adding to the stress faced by exporters.
With no expectations of a recovery any time soon in the key markets the US, Europe and Japan this pattern will persist well into the current year. Given the number of jobs at stake, this will be a critical challenge for the new government.
Imports in dollar terms declined on roughly the same scale as exports in March, falling by 34 per cent. This reflects primarily the fall in energy and commodity prices over the past year, but is also due to slower growth in domestic production. As a result, the trade deficit in March 2009, at $4 billion, was substantially smaller than the $6.3 billion clocked in March 2008.
The deficit for 2008-09 was $119 billion, up sharply from the $88 billion in 2007-08. But with the import decline mirroring the export slump, and with oil and other commodity prices likely to remain where they are, no significant pressures on the balance of payments are likely to emerge in the foreseeable future.
The fact that both the current account and the capital account showed deficits in the October-December quarter is certainly a matter of concern. However, if capital inflows return even in moderate amounts, as they did in April, the deficit on the current account could quite easily be neutralised and thereby ease pressure on the foreign exchange reserves.
For the first time in post-Independence history, balance of payments problems are not playing any role in an economic crisis. This reflects quite positively on the way in which external sector reforms were designed and implemented, and the buffers that were put in place to protect the economy against a shock.
The real problem, therefore, is unemployment. Indias manufactured export basket comprises its most labour-intensive products. In sluggish global conditions, which are expected to persist for a while, job gains are rapidly turning into job losses.
Apart from dealing with the immediate fall-out of job losses, the new government desperately needs to think of ways to diversify and de-risk the process of employment generation. For years now, people have been arguing that reforming domestic labour markets is an essential requirement for that to happen. With the export situation as it is, the change is now imperative.