Merchandise exports grew for a third straight month in November, though at a slower pace than the previous month, and imports rose for a second successive month, according to official data released on Thursday, which largely refuted assumptions that demonetisation might have reversed a nascent trade recovery.
Exports rose 2.3% to $20 billion and imports advanced 10.4% to $33 billion in November, greatly aided by conducive base effects. Some labour-intensive sectors like garments and gems & jewellery (where many workers are paid in cash on a daily or weekly basis) witnessed a decline, suggesting that demonetisation may have hit them.
Exports had grown 9.6% in October. Exports and imports had dropped an annual 24.4% and 30.3% respectively, in November last year, both recording the worst contraction at least since the streak of decline started in December 2014.
Higher imports drove up merchandise trade deficit to $13 billion in November, the highest since November 2014. This may put pressure on the current account deficit in the third quarter of the fiscal year; the deficit expanded moderately to 0.6% of GDP in the second quarter of 2016-17 from 0.1% in the first quarter.
Services exports touched $13.11 billion in October, slowing a tad from $13.34 billion a year before, according to the data. Services imports, however, rose to $7.68 billion in October from $7.01 billion a year earlier.
However, with the US Federal Reserve hiking the interest rate by 25 basis points for the first time this year on Thursday, the potential weakening of the rupee against the greenback — which in any case has already witnessed some depreciation in recent months — might brighten export prospects.
But analysts say the key to any improvement in export competitiveness will be how much the currencies of its peers depreciate against the dollar in such a scenario. Although the rupee has witnessed some volatility in recent months, it still remains one of the best-performing currencies among emerging economies.
Also, policymakers may seek solace from the fact that non-oil and non-bullion exports grew as much as 5.2% in November, while such imports rose an impressive 7.7%. However, non-oil export growth slowed to just 2.1% in November from 9.9% in the previous month.
The rise in exports in November helped reverse an earlier decline, as the outbound shipments during the April-November period grew 0.1%. Higher growth in November also partly narrowed a sharp decline in imports to 8.4% between April and November.
Gold imports rose 23.2% to $4.36 billion in November, slower than the 108% rise in the Diwali month of October, but still remained impressive. “The sharp rise in gold imports in November 2016 reflected inventory replenishment, festive season and wedding demand as well as some impact of demonetisation. If the recent amendments to the Income Tax Act dispel demand for holding of gold as well as jewellery, the gold import volumes may decline significantly in the coming months,” said Icra principal economist Aditi Nayar.
Higher imports augur well for export prospects as well, as the share of import-intensive export sectors — such as gems & jewellery, chemicals and transport equipment and petroleum products — in overall exports rose from 35% in 2000 to around 45% in 2015.
