The trade data for December came as something of a relief. Even though exports declined over December 2007, they did so by a modest 1.1 per cent in dollar terms, which is quite a contrast to the 12 per cent and 10 per cent year-on-year declines seen during October and November, respectively. However, given the sharp depreciation of the rupee during the year, the rupee value of exports actually increased by a healthy 22 per cent over the year. This takes the growth rate of exports for the April-December 2008 period to 17.1 per cent in dollar terms and 28.7 per cent in rupee terms. The difference between the two numbers is important. When the rupee was appreciating during much of 2007, Indian exporters fought to retain market share by keeping dollar prices constant, thereby taking a hit on rupee revenues and, consequently, margins. From the perspective of business viability, exporters have actually had a rough time since then. In 2008, as the currency moved in the opposite direction, providing some breathing space, volumes crashed. In effect, rupee depreciation has helped offset declining volumes by shoring up rupee revenues. But, this is only a temporary reprieve, in the context of a generally pessimistic outlook for exports in the coming months.
Earlier this week, the commerce secretary, G K Pillai, announced that exports in January are estimated to have declined by an enormous 22 per cent from a year earlier. This indicates that the modest December decline was a short-lived aberration and the export community must prepare itself for difficult times. Data coming in from other Asian economies indicate that percentage declines are even larger than this in many cases. All this reinforces the view that the US economy built up unsustainable inventories during the previous quarter. While drawing them down in the current quarter, both domestic production and imports will be adversely affected. Under the circumstances, the focus of policymakers needs to change. Providing tax relief and lower interest rates are only palliatives. The real threat now is from establishments shutting shop and the difficulties that they are likely to face in resuming business when market opportunities return. The question to ponder is whether it is worth keeping units afloat through liquidity infusions until that happens. Then, there is the humanitarian and political question of how to deal with possibly millions of jobless workers who do not have any organised safety net to fall back on and who are obviously unlikely to find alternative employment in a hurry. The situation must induce some deep thinking on the overall structure of the country’s exporting industries and their ability to withstand such external shocks.
There are some concerns on the import side as well. While oil imports declined by a significant 31 per cent in December, non-oil imports increased by about 32 per cent. In an environment of stagnant or declining industrial production, this suggests substitution for domestic products. The US fiscal stimulus package has been roundly criticised for pandering to protectionist lobbies. These lobbies are far from extinct in India and patterns like these will give them new energy. There is an urgent need to know whether this is an aberration or an emerging trend. The commerce ministry should quickly announce its advance estimates of imports during January.