Gone: India Inc’s export confidence is shot to pieces.

There’s one more economic target we can now abandon this year. After inflation (goodbye 6-7 percent), and growth (adieu 7 percent), we can now safely tear up the export target of $360 billion we set for ourselves in 2012-13.

One-third along the way (April-July 2012), we haven’t even huffed and puffed our way to the $100 billion mark (actual figure: $97.6 billion), and the downward trend in export growth is accelerating. We have had four consecutive months of deceleration.

Consider the numbers: April export growth 3.23 percent; May -4.16 percent; June -5.45 percent; and in July, a whopping decline of –14.80 percent (Read this Business Standard report here).

The import tide, on the other hand, seems to be reversing. After tumbling in April, May and June, July import growth was -7.78 percent – a slower fall than in June (-13.46 percent).

The net result of these trends in exports and imports is that our trade deficit will not really shrink appreciably this year. In April-July 2012, the gap was at $55.5 billion, against $60.9 billion in 2011 – a mere $5 billion shrinkage despite the sharp fall in the rupee over the last one year and the crash in gold imports after the imposition of new taxes in the budget.

If the trade and current account deficits remain as wide as in 2011-12, the rupee will remain stuck below Rs 55 for a long time.

The European slowdown is being blamed for the export deceleration, but it can’t be the whole explanation. After a 20-25 percent depreciation against the dollar, India’s exports should have been at least able to hold lasts year’s numbers, if not growing like gangbusters, but it is instead shrinking dramatically.

Clearly, we must seek explanations elsewhere.

One possibility is that the loss of business confidence back home is resulting in a weakened export effort, too. (Exports need investment as much as domestic output). A high effort in exports usually results in higher import growth in non-oil imports (since some exports tend to have a high import component), but the figures show that non-oil imports are falling faster than oil imports.

Oil imports have fallen by just 4-5 percent in June and July after increases in April and May; in the case of non-oil items, imports were static in April, but in May, June and July they simply crashed by -16.11 percent, -17.8 percent and -8.57 percent.

Moreover, the slow shrinkage in the trade deficit is almost entirely the result of domestic factors – and especially the government’s refusal to raise diesel prices.

At last count, the oil marketing companies were losing Rs 551 crore daily – most of it due to losses of Rs 17 per litre on diesel, losses that are increasing due to the UPA’s decision to subsidise diesel for pumpsets in what was believed to be a drought year. Try getting that discount back now that everyone is sniffing elections round the corner.

The most disturbing fact is this: if a rupee at Rs 55 is not incentive enough to export like crazy, one wonders what has happened to India Inc’s much-touted competitiveness.

Has the UPA’s rural rhetoric and the current political stalemate reduced India Inc to jelly?

Source : firstpost.com