External Trade: Where are we heading? - Views on News from Equitymaster

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External Trade: Where are we heading?

Sep 14, 2001

It is a well known fact that the economy is slowing down. Revenue collections have also been affected in light of falling corporate profitability. Given the gloomy environment, how is India's external sector performing? The slowdown in the economy has not augured well for external sector. Goods movement in all the major ports have considerably slowed down. In May 2001, traffic at all major ports fell by as much as 15.7%, the sharpest fall since March 1999. For the first four months of the current financial year i.e. April-July 2001, total traffic has fallen by 3.1% as compared to a 6.1% growth in the corresponding period of the previous year. However, for July 2001, freight traffic has increased by 1.4% to 241 MT.

If one were to look at the commodity wise traffic data, petroleum, oil and lubricants (POL) that accounts for almost 37% of total traffic fell by 9.3% for the aforesaid period. On the other hand, cement, foodgrains and iron ore traffic have gone up sharply by 27.5%, 143.5% and 10.1% respectively (cement shipment for the month of August 2001 had increased by 12%). Though steel production had increased only marginally in 1QFY02, finished steel production has reported a 1.6% growth after a continous fall in output for four months.

One of the key reasons for a lacklustre external trade is the slowdown in the industrial production on account of a subdued demand scenario. The Index of Industrial Production (IIP) grew by just 2.1% in 1QFY02 as compared to around 5% in the the corresponding quarter of the previous year. As a result, the gross domestic output estimates for the current year have also been scaled down by various institutions.

CMIE expects exports and imports to grow by 7% and 5% respectively in the current year (while exports grew by 20% in FY01, imports registered a marginal fall of 0.1%). However, there is a silver lining. Agricultural output is expected to grow by 7% on the back of a good monsoon. This should bring in some respite to the industry in the second half of the year. However, the recent terrorist attack on the US is expected to have a significant impact on world trade in light of nervousness in the global markets. If it turns out to be so, India might have to contend with lower exports for the rest of the year.

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