The trade numbers for September 2009, released earlier this week by the Ministry of Commerce and Industry, broadly conform to the trends that are visible in the global economy. The year 2008-09 was a sharply differentiated year for exports. From April-September 2008, exports grew by over 20 per cent year-on-year. By sharp contrast, they dropped by over 20 per cent year-on-year during the October 2008-March 2009 period. Given the state of the global economy in the first half of 2009-10, the high base of the previous year would have been expected to result in rather sharp declines during the current year, and so it was. During April-September 2009, exports declined by almost 30 per cent in dollar terms. However, tracking the turnaround in major destination economies, the rate of decline has been gradually easing off. It fell below 20 per cent last in August and has come in at 13.8 per cent in September. Given the performance in October last year, it is quite likely that the number for October 2009 will be close to zero, if not actually positive. Over the course of the next few months, exports will begin to revive, ending a period of extreme distress for the sector.
Of course, even as exports have been sliding, imports have been doing so to an even greater extent. Falling volumes on account of the slowdown in growth contributed, but the most significant reason for this is the sharp decline in the prices of oil and other commodities over the past year. In September 2009, imports declined by 31.3 per cent in dollar terms, taking their total decline during the April-September 2009 period to 32.7 per cent. As a consequence of this, the trade deficit during September was a mere $7.7 billion, about half of what it was a year ago; during the April-September period, it was $46.7 billion, compared to $76.1 billion in the corresponding period of last year. Over the next few months, it is likely to remain low, pushing the current account into a relatively small deficit, conceivably even a surplus. This will exacerbate the anticipated upward pressure on the rupee that is already being driven higher by a revival in capital inflows. However, as the economy recovers and oil and commodity prices continue on their recent upward trajectories, the value of imports will also begin to increase and the trade deficit will start moving up. If economic growth accelerates to 8 per cent in 2010-11, as the Planning Commission has just projected, a more normal current-account scenario will quickly re-emerge. To sum up, one striking feature of the recent crisis is that it has had virtually no adverse impact on the country’s balance of payments, which was always a feature of previous crises. This says something about the contribution that external sector reforms have made to resilience and stability. But, the vulnerability that exporters, particularly small ones, have shown to upheavals suggests a need for appropriate interventions.
