Exports grow 12%, trade gap contracts

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Good numbers can help end gold curbs, push job creation

Exports grow 12%, trade gap contracts
India’s exports grew in double digits in May, the fastest pace in six months, helped by a weaker rupee and a pick-up in demand from Europe and the United States. Imports continued to contract, shrinking 11.4 per cent to $39.23 billion.

Analysts said this might raise the possibility of further relaxing the curbs on gold imports, as gems & jewellery was the only major exporting sector not performing well.

Commerce secretary Rajiv Kher indicated a further push to external trade, especially Indo-US trade ties as the two nations plan to start the dormant trade talks this July setting the agenda for a possible ministerial-level meeting in October. Prime minister Narendra Modi is scheduled to meet US president Barack Obama in Washington in September.

Indo-US trade now sta-nds at $100 billion, whi­ch many say is far below potential, mainly because of disputes over protectionism and intellectual property rights that have dogged the pharma and solar energy sectors in the recent past.

If the buoyancy seen in May continues, exports are likely to grow 7.2 per cent this financial year, said rating agency India Ratings and Research (Ind-Ra). May exports expanded 12.4 per cent year-on-year to $28 billion after a not-so-encouraging show in April.

The export growth was largely led by labour-intensive sectors: shipments of ceramic products and glassware grew 43.76 per cent, leather and leather products 26.88 per cent, readymade garments 24.94 per cent and carpets 19.26 per cent. This augurs well for the economy, where employment generation has stagnated in the past two years.

Petroleum products, which saw 28.7 per cent growth, and engineering goods (up 22.09 per cent) contributed 78.7 per cent to exports growth, bringing good news for the manufacturers.

Non-oil and non-gold imports remained stagnant at 0.5 per cent growth. But the worrying signal was in the continuous contraction in imports of electrical and non-electrical machinery and project goods. This, along with the decline in domestic production of capital goods, implies that a revival in investment is still not in sight.

Ind-Ra says India Inc could be waiting to see the first policy statement of the new government in the Union budget, which is likely to be unveiled in the second week of July, setting the direction for a turnaround in investment.

May gold imports dropped by a whopping 72 per cent. India is the world’s second-biggest gold buyer and the government is under pressure from the industry to loosen the restrictions and the 10 per cent import duty imposed in 2013 to stem a slide in the rupee.

Kher said the trade ministry was in favour of rationalising the import duty as normalcy was needed to be restored in gold imports. “The export figures have begun to acquire their normal levels, which is encouraging,” he said.

The contraction in imports helped reduce May trade deficit to $11.2 billion from the prior year, but it was a tad higher than $10.1 billion posted for April. Cumulatively, the trade deficit for the first two months of this financial year stood at $21.3 billion, much lower than $37 billion for the year-ago period.

A lower trade deficit can bring down the 2014-15 current account deficit, which Ind-Ra projects at $45.4 billion, 2.1 per cent of GDP.

M Rafeeque Ahmed, president of the FIEO, said the numbers hinted at the beginning of an upward growth momentum in exports backed by better global trade forecasts for 2014 and 2015. Most economies, barring a few in Latin America, are showing improvement, which is good news for India’s exports. “Going by the current trend, exports could reach $360 billion in 2014-15,” Ahmed said.

The government is aiming to achieve $1 billion worth of exports a day this financial year, said commerce secretary Kher.

Ficci president Sidharth Birla attributed the export growth to the revival in demand from the US and European countries. A weaker rupee, strict controls on gold imports helped prevent a brewing balance of payments crisis last year.

Kher favoured opening up agricultural exports, where possible, but added that the government was ready to intervene if needed to contain onion and milk prices, key drivers of India’s volatile food inflation.

The government has reviewed the situation and there is no cause of worry for wheat and rice at present. The government is closely watching the price situation in onion, milk and pulses.

“Onion and milk are important. We are closely observing the price trends and whenever required, an appropriate action will follow,” Kher said.

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