The recently released trade data for December 2009 reveal two significant developments in India’s foreign trade. First, the turnaround in exports has sustained for the second month. Exports grew by 9.3 per cent, from $13.38 billion in December 2008 to $14.61 billion. The improvement is particularly encouraging as it has come on top of the 18 per cent-plus growth recorded in November reversing the downtrend witnessed over a period of 13 months. The second development is that the trend in imports too has turned positive. After an 11-month slump, imports grew by 27.2 per cent to $24.75 billion from $19.46 billion a year ago. It is perhaps no coincidence that the pick up in India’s foreign trade, both exports and imports, has come at a time when the global recession is abating. The principal markets for India’s exports are the United States, the European Union, and Japan. Although these markets are recovering from the recession, economic growth continues to be sluggish and fragile. The policy-makers have been repeatedly urging exporters to diversify their markets. Indeed, such market diversification is a major plank of the Foreign Trade Policy, the targets being the newer, unconventional markets in Asia, Latin America, and Africa. Such advice is especially valid now in the continuing quest for greater stability in exports.

The growth in imports is a positive sign. Manufacturing has been growing in double digits. Lower non-oil imports in the past indicated lower investment demand in capital goods. The more robust trade figures of November and December correlate with the stronger macroeconomic performance. All major institutions have been marking up their forecasts of India’s GDP growth for 2009-10. However, it would be unwise to ignore the ramifications of the global recession on foreign trade. To a large extent, the recent trade figures look good because of the base effect: world trade contracted sharply from October 2008. Over a nine-month period, April-December 2009, both exports and imports have grown at a lower rate than during the corresponding period in 2008. Despite the recent bounce back, exports are likely to be well below last year’s levels. The overall trade deficit for the nine months has shrunk by more than 28 per cent and now stands at $76.24 billion. Oil prices were generally benign until December when they started firming up. A lower trade deficit is not necessarily a positive feature when it indicates lower economic activity. World crude prices represent another imponderable and could well upset the calculations on the foreign trade front.

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