 "Exports decline to continue this year")
India's goods exports contracted for a 10th straight month in September, surpassing the prolonged decline during the 2008 financial crisis.
With the International Monetary fund (IMF) and the World Trade Organization (WTO) lowering their target for world trade, India's growth faces an export challenge.
"It is due to the combination of weak global demand and the fall in commodity prices," says Devendra Pant, chief economist, India Ratings.
The IMF lowered its forecast for world trade to 3.2 per cent in 2015, from its July forecast of 4.1 per cent. Projections for emerging markets were cut to 1.3 per cent, from 3.6 per cent in its July forecast.
In large parts, the revisions are on account of a slowdown in China. It will have a limited direct impact on India as China accounts for only four per cent of India's goods exports but the indirect impact is likely to be severe.
The Asia region accounts for 48 per cent of our exports but is closely integrated with the Chinese economy. Chinese imports fell 20 per cent in September, indirectly impacting India.
The sharp fall in crude oil prices has also played a part in lowering export growth. Petroleum and crude products account for a fifth of India's goods export basket. "Lower crude oil prices also impacted our exports of refinery products, which declined in value terms," said a research note prepared by CARE Ratings.
However, non-oil exports are shrinking as well, in line with the decline in global trade. According to Aditi Nayar, senior economist at rating agency ICRA, "In addition to the decline in crude oil prices, the correction in prices of other commodities and the pass-through to final goods, have contributed to the fall in value of Indian exports."
Even if one excludes commodities, exports of manufactured products also declined.
In the first five months of the financial year from April to August exports of manufactured goods fell to $82.5 billion from $86.3 billion in the same period last year, with declines across almost all product categories.
Experts contend that in the absence of a significant pick-up in global demand and commodity prices, exports are unlikely to go up in the near term. This could be a drag on growth as merchandise exports account for around 18 per cent of GDP. Reflecting the skepticism, Nayar says, "In ICRA's view, merchandise exports are likely to record a double-digit decline in the current year, unless commodity prices stage an appreciable recovery." CARE Ratings too expects exports to contract by eight to 10 per cent this financial year.
This decline in exports will exert negative pressure on growth, given the high share of exports in GDP.
