News and Events

Europe crisis hits exports; growth lowest in 2 years

In a clear sign of the eurozone sovereign debt crisis impacting the Indian economy, growth in exports slipped to a mere 10.8 per cent at $19.9 billion in October this year, the lowest increase since the same month in 2009 when it contracted by 6.6 per cent.

In sharp contrast, imports grew at a much faster clip at 21.7 per cent to $39.5 billion during the month, especially owing to a spike in international prices of crude oil and vegetable oils - the two major commodities in which domestic consumption demand is largely met through imports. As a consequence, the trade deficit for October 2011 at $19.6 billion worked out to be the highest-ever for any single month in the last four years.

According to the provisional trade data released here on Tuesday, the slump in export growth to 10.8 per cent has been a sharp deceleration - from a peak of 82 per cent in July, to 44.25 per cent in August and to 36.36 per cent in September.

Commenting on the data, Commerce Secretary Rahul Khullar pointed to the grim scenario in the months ahead and said: “In any sector, it is the lowest in the last three months, deceleration is uniform…The picture is not going to be rosy for the next six months”.

However, thanks to the robust performance during the earlier months this fiscal, the cumulative growth in exports during April-October still look healthy at $179.8 billion, marking an increase of 46 per cent over the same period in the previous fiscal year. Alongside, imports during the seven-month period also posted a steady 31 per cent growth to $273.5 to leave a wide trade gap of $93.7 billion.

Expressing concern over the widening trade gap, Mr. Khullar said: “Balance of trade is something to be very worried about. Because at this rate, it is going to breach [the] $150 billion mark [for 2011-12]”.

As per the official data, the export sectors which have performed well during the April-October period this year are engineering with a growth of 89.6 per cent at $51.4 billion; petroleum and oil products 51 per cent ($31.9 billion); cotton 22 per cent ($3.99 billion); electronics 50 per cent ($6.4 billion); and readymade garments 31 per cent ($7.7 billion).

However, during October alone, sectors which depend heavily on European markets have been severely impacted. In particular, the electronic goods sector, a major chunk of which is exported to Europe, has witnessed a sharp dip in growth by 18 per cent. “Clearly, that is where the growth has contracted...effect of what is happening there,” Mr. Khullar said.

Reacting to the sharp dip in export growth in October, Federation of Indian Export Organisations (FIEO) President Ramu Deora said that the trade numbers have not come as a surprise. For, looking at the global economic developments, he had projected earlier that exports would suffer during the third and fourth quarters of the current fiscal.

Of special concern, he said, was the drop in export values of engineering and petroleum products. And, with the eurozone crisis spreading in the next couple of months, a pick-up in exports would be more difficult.

Making out a case for incentives, the FIEO chief said that the government should provide full support to exports by providing export credit at 7 per cent and make available foreign currency credit at 200 basis points above Libor (London Inter-Bank Offered Rate) to help the exporting community survive in tough conditions.