By Manoj Kumar
NEW DELHI (Reuters) - India's merchandise exports shrank far more than expected in August, falling for the ninth month and adding to Prime Minister Narendra Modi's concerns that Asia's third-largest economy may not be creating enough jobs for unemployed youth.
Jobs are a critical issue for the government, struggling to revive growth to a rate that will create employment for the millions who join the workforce every year.
Goods exports, equivalent to about 15 percent of gross domestic product, contracted 20.7 percent year-on-year because of continuing weak global demand.
The trade deficit marginally narrowed to $12.5 billion last month from $12.8 billion in July, helped by cheaper oil imports, data released by the Ministry of Commerce and Industry on Tuesday showed.
Economists said growth could ease to 7 percent to 7.5 percent in the current 2015/16 fiscal year ending in March, against a target of 8 percent to 8.5 percent, if the slump in global demand continues.
"We need to target growth assuming little support from external demand," said N.R. Bhanumurthy, an economist at National Institute of Public Finance and Policy, a government-backed think-tank in Delhi.
Imports fell 9.95 percent from a year earlier to $33.74 billion in August, while exports stood at $21.27 billion, reflecting both lower global commodity prices and sluggish domestic demand.
Global financial markets have been rattled in recent weeks by China's slowing economy and worries ahead of a meeting of U.S. Federal Reserve this week at which a rise in interest rates is possible.
From April to July, India's goods exports to its top five markets - the United States, United Arab Emirates, Hong Kong, China and Britain - that contribute 39 percent of total exports, fell 14.9 percent to $90 billion compared with $105.7 billion a year ago.
Exporters have been lobbying for lower borrowing costs and fiscal incentives to explore untapped markets such as Africa and Latin America. Modi met business bosses last week and assured them of government support to boost growth.
Raghuram Rajan, governor of the Reserve Bank of India, who has cut policy rates by 75 basis points this year, is widely expected to reduce rates at a policy meeting on Sept. 29 thanks to inflation at a record low.
Ajay Sahai, director general at Federation of Indian Export Organisations, said even if the global demand picks up, it would be difficult to achieve the level of last fiscal year's $310 billion exports this year.
"If the trend continues, we may rather see job losses in many export sectors," he said.
(Reporting by Manoj Kumar; Editing by Douglas Busvine, Robert Birsel)
