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Merchandise exports to US grow 2.65%
Rituparna Bhuyan in New Delhi | March 23, 2009 10:11 IST
Last Updated: March 23, 2009 10:12 IST
India's merchandise exports to the US, the largest buyer of Indian goods, grew only 2.65 per cent in the first eight months up to November 2008, indicating the impact of the global financial crisis on export demand. The growth rate in the corresponding period of the previous fiscal was 10.17 per cent.
In fact, only two out of India's top five export destinations witnessed an increase in exports during the period. Total exports from the country had expanded 17.5 per cent during the period and stood at $118.25 billion.
The United States is reeling under the worst financial crisis since the Great Depression which has lead to a drastic fall in demand for goods there. Todal exports to the US in the period stood at about $15 billion, as against $13.7 billion in the same period of 2007. The US' share in India's export basket fell nearly two percentage points in the period.
"This is not surprising as the US economy is expected to shrink this year. There is no immediate hope of revival of import demand in that country," said Nagesh Kumar, director general, Research and Information System for Developing Countries.
The origin of the ongoing economic crisis lay in the US, where a host of investment banks like Lehman Brothers collapsed in mid-2008. This has led to unprecedented job losses in the world's largest economy, which in turn has caused reduced spending, shaving out the appetite for goods.
"Most exports to the US are income elastic. The more the income, the greater the demand for these items. In the current scenario, there are job losses in the US and hence the demand for such products has gone down drastically. Until manufacturing activity picks up there, we do no see an increase in exports to the US," said KT Chacko, director, Indian Institute of Foreign Trade.
An analysis of 20 top exports to the US shows that there is a drastic contraction in export growth for most goods. Gems and jewellery, which have the highest weight in the basket of India's exports to the US, dipped 12.8 per cent ($3.13 billion), petroleum products fell nearly 73 per cent ($0.15 billion), while exports of readymade garments contracted 7.5 per cent. The fall, however, was cushioned by an increase in auto components and machinery exports. Exports to China, India's fourth-largest export destination, contracted about 12 per cent to $5.21 billion in the eight months ending November 2008.
China is also under stress because of the global financial crisis as nearly 40 per cent of its gross domestic product is accounted for by exports. "With Chinese exports declining, its demand for imports will also contract," said Chacko.
Export of iron ore, accounting for more than 90 per cent of India's exports to China, dipped 2.6 per cent, and stood at $2.5 billion in the eight months ended November 2008.
Exports to Hong Kong, India's fifth top export destination, also witnessed a decline. The growth in gems and jewellery exports, which account for a fourth of the goods India exports to the former British colony, remained flat ($3.62 billion).
But the silver lining was an increase in momentum of exports to the United Arab Emirates and Singapore, India's second and third largest export destinations, respectively.
"Both these are major shipping hubs from where goods are re-exported other countries. While Singapore is a major entry point to the Asean nations, goods sent to the UAE are re-exported to West Asian countries and Pakistan," added Kumar.