The July miracle The astounding export growth in July will not repeat itself soon, mainly for reasons beyond policymakers' controlExports in July zoo

The July miracle/Exports in July zoomed by 82 per cent;

The astounding export growth in July will not repeat itself soon, mainly for reasons beyond policymakers' control.

The latest data on exports released by the Commerce Ministry offer some good news in these parlous times when conventional markets for Indian exports such as the United States and Europe remain uncertain on account of financial problems and a slow recovery. Data for July show traditional exports led by engineering goods spurting and diversifying into non-traditional markets such as Africa and Latin America. Exports in July zoomed by 82 per cent; Commerce Ministry officials however were quick to point out that the pick up was on account of the execution of orders placed well before the current crisis in the US and Europe; the July spurt may therefore not repeat itself in August.

Such data would not have been noteworthy had it not highlighted the potential of Africa and Latin America in helping Indian exports increase. The fact that China, the biggest trade partner for many African countries is experiencing high inflation may offer Indian exporters an edge; Chinese wages have been rising to keep pace with inflation and many Chinese textile manufacturers have been shifting base to Indonesia or Vietnam to take advantage of low labour costs. But India too has an unduly high inflation to contend with. The irony is that the Reserve Bank of India's inflation-fighting techniques have added to costs of small and medium enterprises, many of which contribute significantly to traditional exports. Given such costs and the fact that conditions in the US and Europe are not likely to change for the better for some time to come, it is not surprising that the Ministry is not sanguine of India reaching its target of $300 billion exports this fiscal; in fact, the Commerce Secretary, Mr Rahul Khullar, wasn't sure on exports hitting a monthly target of $25 billion henceforth. While exports may slow down, imports would continue to escalate thus adding to the trade deficit that widened by $4 billion in July over the previous month to $11 billion and may cross $130 billion this fiscal. It is heartening that imports of machinery electronics declined in July but oil imports grew. With oil prices declining on fears of lower demand from China and the US, the deficit burden may reduce but there's no accounting for volatility in prices. Machinery imports may not continue to decline since data show a sluggish capital goods sector and anecdotal evidence suggests rising popularity of Chinese equipment for power and telecommunication.

The July data as Mr Khullar said will not repeat itself soon mainly for reasons beyond policymakers' control; so much the worse for GDP growth since investments are down and as the RBI said earlier, consumption will follow suit.
(This article was published on August 13, 2011)

Keywords: Commerce Ministry, July exports data, GDP growth