NEW DELHI: India's merchandise exports rose smartly in July on a weaker rupee while imports fell, offering the policymakers a reason to cheer in an otherwise dull economic environment.
Exports in July rose to an 18-month high of 11.6% while imports fell 6.2% from a year ago, yielding a trade deficit of $12.3 billon, almost the same as the previous month. The data came out on Monday as Finance Minister P Chidambaram announced a slew of measures in the Parliament to contain the current account deficit to $70 billion, which is 3.7% of theGDP from a record high of 4.8% in the last fiscal.
After two consecutive months of contraction, exports rose to $25.8 billion in July as sectors like pharma, textile, chemicals and petrochemicals posted a strong growth. Engineering goods, however, put up a poor show again.
The 13% fall in the value of the rupee against the dollar facilitated the growth in exports, but commerce secretary SR Rao said it is a stable exchange rate that helps exports. "Volatility does not permit exporters to get full value from the depreciation," he said.
The double-digit growth in exports could also be explained by the base effect, as exports declined 14.8% in July last year. "It is too premature to call it a turnaround in exports. The low base of last year explains the high growth. The global economy has not shown turnaround as such to explain such a high growth. If this is the effect of rupee fall, then we should see a similar growth in the coming months too to call this a turnaround," said Madan Sabnavis, chief economist at CARE Ratings.
On a month-on-month basis, exports grew 8.4%. This, however, is not considered a good comparison as it does not factor in the seasonal variation.
Imports in July fell to $38.1 billion, mainly because of a sharp fall in gold and silver imports. Gold and silver imports stood at $2.97 billion, down 33% from the year ago but higher than $2.45 billion in June. The government and the Reserve Bank have taken a slew of measures recently to curtail gold imports in an effort to contain the current account deficit that widened to a record 4.8% of GDP in the year ended March.
Oil imports in July declined 8% over the year ago to $12.7 billion.
"Healthy advancement of monsoon and encouraging hydro power generation would have reduced the demand for diesel for generator sets," said Shubhada Rao, chief economist at YES Bank. "Continued upward revision to retail oil prices amid firming up of global price coupled with rupee depreciation may have capped domestic demand. Weakening industrial and consumption growth could be acting as a further dampener."
In the first four months of the fiscal, India's exports rose 2.82%.
"But our target stands at 10% growth for the fiscal," said the commerce secretary. "Demand from regions like Africa, ASEAN and Far East mainly helped exports to grow,", he added.
The government has set an export target of $325 billion for the current fiscal. India exported goods worth $300.6 billion in last fiscal. "The support given by the government has come very handy along with depreciation of the rupee in imparting competitiveness to exports," said M Rafeeque Ahmed, president of FIEO.
Sanjay Budhia, chairman of CII's national committee on exports and imports and managing director at Patton Group said the double-digit growth has brought in a lot of positivity among the exporters. "There are still challenges in terms of infrastructure, credit coast and availability, which we expect the government to address," Budhia said.