Sliding exports raise risk of external shocks, says RBI
Continuous fall in merchandise exports due to weak global demand has rendered the Indian economy “vulnerable to external shocks”, said Reserve Bank of India in its annual report. Though the sharp fall in global crude oil prices has helped India in reducing its import bill and maintaining the current account deficit, the contraction in export is eating out the positive impact of the global slowdown. “The contraction in merchandise exports since December 2014 emerged as an area of concern, sapping aggregate demand and increasing external vulnerability, notwithstanding terms of trade gains and a large saving on POL (petroleum oil and lubricant) imports helped contain the current account deficit,” the central bank said in its assessment of 2014-15 on Thursday. For the current financial year, the RBI has projected that gradual pick-up in activity may revive non-oil and non-gold import demand in the country. So far, the imports of non-oil and non-gold have been “moderate due to muted domestic activity”. However, “over the rest of the year, some savings may accrue on account of POL and bullion imports; on the other hand, the gradual pick-up in activity anticipated over the rest of the year may revive non-oil non gold import demand,” the report said. In the coming months, the RBI said, the country can expect surplus from trade in services, software exports and travel earnings and hope to contain the current account deficit below 1.5% of GDP through the entire year. However, the outlook for capital flows is highly uncertain due to investors’ concern over US Federal Reserve’s decision to cut interest rates later this year. “With the widely anticipated normalisation of US monetary policy later in 2015 expected to generate capital outflows from emerging markets and also to harden financing conditions as bond yields rise,” the RBI said, adding that the forex reserves of $350 billion and equivalent of about nine months of imports should provide a buffer and smooth out normal import and debt servicing requirements over the year. According to the latest data released by the Commerce Ministry, India’s oil imports during July, 2015 were valued at $9.48 billion, down 34.91% as compared to the import in July last year. Between April and July this year, the country’s total oil import reduced by 37.91% to $34.14 billion from $54.99 billion recorded in the first four months of the last fiscal. The total exports contracted by10.3% to $23.13 billion in July, the 8th consecutive month. But the rate of decline in July was less than that of the previous month. In June, exports witnessed a fall of 15.82%.
August 28, 2015 | 2:21pm IST.