Opinion Trojan numbers

The CAD for the April-June period stood at $6.2 billion or 1.2 per cent of the GDP, as compared to $7.8 billion (1.6 per cent) in the same period last year.

There are two ways to look at the latest trade data released on Tuesday. One is to focus on the over-20 per cent decline in exports in August, which saw the ninth straight month of negative growth and also the sharpest fall. But this dismal picture is somewhat offset if one considers the import intensiveness of a large part of our exports. Given that global prices of most imported inputs have fallen, the dollar realisations on exported products, too, would have declined. This would manifest itself in a fall in the gross value of exports — such as in petroleum products or gems and jewellery — even if not on a net basis.

Also, if one were to look at the trade deficit (excess of imports over exports), the picture is better than last year. The same goes for the current account deficit (that is, the trade deficit plus the balance on account of services, remittances and other invisible account transactions). The CAD for the April-June period stood at $6.2 billion or 1.2 per cent of the GDP, as compared to $7.8 billion (1.6 per cent) in the same period last year. For the Indian economy, which was struggling with a CAD of about 5 per cent till a couple of years ago, this appears to be an achievement. Thus, if net exports and the lower CAD are factored in, the decline in exports may not seem all that disconcerting.

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Yet, there are reasons to feel concerned. The most prominent of them is the fall in agriculture- and labour-intensive exports such as textiles and leather. The loss of employment or lower farm price realisations on that count is something that cannot be ignored. But the broader numbers on imports, the trade deficit and the CAD may be hiding a more bitter truth — that of sluggish industrial performance within India, which is also getting reflected in falling imports. Import requirements ultimately reflect the state of domestic demand. The uneven data from the index of industrial production further underscores the fact that there is not enough investment in the domestic economy.

The truth is that a lower CAD or trade deficit is only a brief respite afforded by the massive fall in oil prices; they are not a result of booming exports or increased competitiveness, especially when Chinese products are becoming more competitive due to a weaker yuan. The Centre should look at ways to stimulate exports, whether through investing in ports, rail and other infrastructure, which is also good for the domestic economy, or providing interest rate subventions in a WTO-compliant manner. And, of course, the RBI could help by slashing interest rates, which is anyway overdue.