The new trade data throws up some interesting developments with Indian exports and imports. For one, boosted by a weaker rupee, exports grew at about 11 per cent year-on-year in March 2019 — the highest such growth for several months. Twenty of the 30 overall product lines saw an increase in exports, including chemicals, pharmaceuticals, and, of course, petroleum products. This late surge means that 2018-19 exports, in dollar terms, come in as being marginally higher than in 2013-14, after long years of stagnation. However, exports measured as a proportion of GDP have not kept pace. The trade deficit in March 2019 was $10.9 billion, which is $1.3 billion more than in the previous month; although exports grew in 2018-19, imports grew even more sharply, and thus the trade deficit for 2018-19 was over $176 billion, compared to just over $161 billion in the previous year.
There was one particularly interesting point about the March trade data, as highlighted by analysts. When oil and gold were stripped out of the trade statistics, the remaining “core” trade balance showed a surplus and not a deficit for the first time since February 2014. While it is perhaps too soon to declare a five-year-long trend of anaemic core exports over, it is worth noting that there appears to be some sign of life in the sector. Exporter organisations claim that this has come at a time when many Southeast Asian competitor economies are dealing with sluggish export growth, and so this is to be doubly celebrated. However, this is not purely an exports story. The government’s effort to crack down on imports of electronic goods, often through the use of tariffs, has also borne some fruit according to these numbers, given that electronic goods imports went down for the second successive month. There are also questions to be asked about the state of domestic demand, given that imports grew only 1.4 per cent year-on-year. The Reserve Bank of India will no doubt take that into account as another relevant data point.
It is, however, too soon to celebrate about a new and healthy balance of payments. The basic vulnerabilities of India’s economy on the external account have not been addressed. As and when crude oil imports increase once again (the share of crude oil rose to $11.75 billion in March, driven by a rise in Indian demand and increases in global crude prices), there is no doubt that the balance of payments will be correspondingly stressed. A strong revival of domestic demand would also serve the same purpose, raising both the oil and non-oil import bill sufficiently to make it difficult to finance. The only way to ensure that India, which imports over 80 per cent of its crude oil, is not subject to these vagaries is to ensure that growth in Indian exports is sustainable, and backed by procedures and reforms that ensure its stability and competitiveness. Reform of processes around the goods and services tax is one obvious path for the next government to consider if it wishes to turn these green shoots of an exports revival into a sustainable recovery.