Trade Data

Good news finally comes on the exports front…

The trade data for the month of September 2016 released on October 14th has some interesting takeaways. There was a clear growth of 4.62% in dollar terms. This growth in exports was largely driven by growth in exports of gems and jewelry as well as engineering goods. This export growth number is all the more commendable because during the same period, US exports fell by 6.42%, Chinese exports fell by 4.36% and EU exports fell by 8.36%.

How exports shaped up…

 The sharp growth in exports was driven by a 5.44% growth in non-oil exports. The government focus over the last few months on specific sectors as well as closer outreach with other countries and businesses seems to be bearing fruit. However, the cumulative export figure for the first 6 months at $132 billion leaves a lot to be desired in absolute terms. India may need to take a re-look at letting the value of the INR dip to assist exports as the INR is currently overvalued to the tune of 14% in REER terms. Although, the turnaround in exports is a good sign, the absolute number is still too small and has shrunk drastically in the last few years.

Critical imports under control…

 Imports at $31.2 billion were 2.5% lower than the corresponding month last year. The good news is that gold imports are down in September and for the first 9 months the gold imports are down nearly 60%. This is critical because importing gold leads to use of precious forex resources to finance an unproductive asset. Of course, cheap oil has continued to keep the imports under check. Imports for the first 6 months were at $175 billion and this means that the forex reserves of $360 billion can now cover more than 1 year of imports. That surely puts India’s external ratings on a very comfortable footing.

Getting the overall deficit picture…

The merchandise trade deficit for September 2016 at $8.3 billion is also down from last year. For the first 6 months, the trade deficit at $43 billion is sharply lower than the trade deficit of $68 billion in the corresponding 6 months last year. With the forex reserves at $360 bn, this gives a lot of comfort to India’s macro management.

One also needs to look at the services trade to get a complete picture. For August 2016 exports of services were at $13.38 billion while imports of services were at $8.05 billion leaving a services trade surplus of $5.33 billion. That leaves a net trade deficit of $3 billion for the month of September and a cumulative trade deficit of $16 billion for the first 6 months of the fiscal. The focus now needs to be on building up on merchandise exports momentum and to get the momentum back on service exports. IT needs to play its part! ©

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