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Trade declines for first time in 7 years

By BS Reporter in New Delhi
March 03, 2009 17:22 IST
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India's exports and imports have together dipped for the first time in seven years, signalling weakening of domestic and external demand in the backdrop of global economic crisis. Government officials said the sale of Indian goods in overseas markets was likely to see a dip in February as well.

Data released by the commerce ministry today showed exports dipped for the fourth consecutive month by 16 per cent to $12.38 billion in January 2009, while imports contracted by 18.2 per cent to $18.45 billion.

"If not worse, February exports are likely to be as bad as January," said a ministry official.

In the April-January period of 2008-09, exports expanded 13.2 per cent to $144.26 billion, while imports rose 25.3 per cent to $242.35 billion.

The trade deficit, which is the difference between value of exports and imports, stood at $ 6 billion in January, compared with $7.8 billion in the same month of 2008. This has narrowed significantly from a high of nearly $14 billion in August 2008 mainly due to sharp decline in commodity prices. In the April-January period, the trade deficit expanded 48 per cent to $99 billion, as imports outpaced exports.

However, in rupee terms, both exports and imports expanded. This is because Indian rupee has depreciated by nearly 25 per cent in the last one year up to January 31, 2009. The Indian rupee, which hit a record low of Rs 52 to a dollar in today's trading, closed at Rs 51.9 per dollar. A week rupee makes imports costly and increases exporters' realisation.

The last time that one saw a contraction in exports and imports during the same month was in March, 2003. In addition, the level of contraction in exports is also the biggest since May 1998, when it dipped by 17.3 per cent. In terms of imports it's the biggest decline since February 2001 (20.42 per cent).

Exports have been hit as developed economies like Europe, United States and Japan, which together make up half of world output and nearly 40 per cent of India's exports, are reeling under recession, leading to lesser demand for goods.

Experts point out that the dip in imports could be attributed to a host of factors. "Some segment of imports, used as inputs for exports, would be down as overseas demand has come down. There is also an issue of declining prices of commodities, as we are net importers in that segment. Capital goods and bullion imports are also likely to be lower," said Abheek Barua, chief economist, HDFC Bank.

Declining crude prices have played a major role in the dip in exports and imports during the month under consideration. International crude oil prices have been sliding since August 2008, when they hit a peak of $147 a barrel. As a result, import of the commodity items in value terms has dipped. Moreover, India's exports of petroleum products as well as many basic chemicals have also contacted in value terms.

Moreover, declining international iron ore prices have also meant that the value of engineering goods like auto components have also dipped. Petroleum products, engineering goods and chemical items constitute half of India's export basket.

In the month under consideration, oil imports were valued at $4.46 billion, 47.5 per cent lower than $8.5 billion recorded in the year ago month. Non-oil imports in January 2009 stood at $14 billion, 0.5 per cent lower than $14.06 billion seen in the corresponding month of 2008.
 

Manufacturing shrinks for 4th month in February: PMI
Manufacturing activity shrank for a fourth straight month in February, a survey showed on Monday. The ABN AMRO Bank purchasing managers' index (PMI), based on a survey of 500 companies, rose to a seasonally adjusted 47 in February from January's 46.7. A reading above 50 signals economic expansion, while a figure below 50 suggests contraction. Manufacturing makes up about 16 per cent of India's gross domestic product.
  Jan '09

Feb '09

Description
 PMI 46.7 47 Points to continued weakness, but slower contraction compared to last two months
OUTPUT 44.2 46.1 At highest level since October 2008, but still a marked drop
in activity levels because of fewer new orders and market conditions
NEW ORDERS 46.1 45.9 Above December's low, but respondents cite lender order books because of poor financial and economic conditions
EXPORT ORDERS 45.1 44.5 Strong international competition keeps this index contracting
for the fifth time in a row
BACKLOG
OF WORK
44.3 47.3 Companies used available capacity to complete outstanding
work,  but rate of completion is at the slowest pace since Oct-08
FINISHED
GOODS STOCK
49.8 45 Less finished goods stock because of low production and
reduction in stock levels
EMPLOYMENT 47.8 49.1 Job losses moderated in February, with 93.6 per cent of firms
retaining the same staff level at their plants
OUTPUT PRICES 44.4 46.1 Strong competition and input deflation made output prices
decline for the fourth straight month
INPUTS PRICES 41.2 42.5 Input price inflation continued to prevail. Respondents linked it to fall in international demand for fuel and raw materials
DELIVERY TIMES 50.6 51.4 The only index above the 50 mark, as supply constraint eased
QUANTITY
OF PURCHASE
45.4 47.9 Firms continued to cut their input purchases as output
and new orders fell in February

In the April-January period of 2008-09, exports from the country stood at $127.45 billion, an increase of 13.2 per cent. The commerce ministry had downsized the export growth from 25 per cent in 2009-10 to 8 per cent recently, owing to the slowdown.

Sherman Chan, economist with Moody's Economy.com, wrote in a report: "The weak rupee will not help to boost export sales, as the main reason for the slump in orders is subdued global demand rather than a loss in price-competitiveness. India's exports are forecast to be sluggish for the rest of the year, and an annual contraction is almost a certainty."

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BS Reporter in New Delhi
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