Exports set new peak, help narrow trade deficit to $2 billion

Export of Indian goods surged to a record $22.5 billion in December last, even as strong production numbers from Cairn India’s Rajasthan block reduced the country’s oil import bill to its lowest level in a year.

As a result, India’s trade deficit narrowed to around $2 billion, the lowest in several years and a fifth of the $10 billion target.

But hold the cheer. Analysts said this is no turning tide — at least from the perspective of the trade deficit.

“The upside surprise (increase) on exports suggests rising demand from developed markets. We do not think that the low trade deficit in December will be sustainable, due to rising oil prices, and the waning of base effects,” warned Tushar Poddar and Vishal Vaibhaw, analyst with Goldman Sachs, the world’s largest investment bank.

India’s best exports performance in a month till date was $19 billion seen in July 2008 just before the global financial crisis peaked.

India’s goods exports have shown tremendous buoyancy all through 2010, partly as a result of the efforts of the commerce ministry led by Anand Sharma and secretary Rahul Khullar.

Sharma had successfully prodded Indian exporters to export to alternative destinations like South America and Africa, when the traditional destinations of Indian goods were ravaged by the recession in late 2008 and 2009.

The strong numbers comfortably surpass the government’s export target.

After clocking around $175 billion in the year-ended March 2010, the government had set a modest target of $200 billion exports in the current fiscal.

Current data suggest in calendar year 2010 alone exports could top $210 billion. That would mean a financial year (up to March 31, 2011) number of close to $220-$230 billion, or double the growth target of 15%.

Exports growth has primarily been led by sectors such as engineering goods — which, at one point, was almost doubling year-on-year, petroleum and refinery items and cotton yarn.

India exports around a third of the petroleum products that it refines, primarily due to an excess of refining capacity. As the crude price goes up — as it has done steadily in the last one year — the value of the exported petroleum products goes up as well, though they still comprise a small percent of the overall goods exports.

In another intriguing turn of the tale, strong production from Cairn India’s Rajasthan block from July last year has brought down India’s oil bill considerably.

India’s expenditure on imported crude — which feeds around 75% of India’s refineries — had hit an all-time high of $12.7 billion in July 2008 — the same month when monthly exports set the previous record.

As international oil prices crashed after the recession, the oil import bill also nose-dived to just $3.6 billion in April 2009.

However, in line with rising crude oil prices, India’s oil import bill increased to $7.1 billion by January 2010 and $8.8 billion in May 2010.

Despite steadily rising crude prices, it suprisingly dropped off in November last year, partly as a result of the massive Rajasthan production kick-off. Cairn is estimated to be producing around a quarter of India’s total crude output and around 10-15% of India’s domestic consumption [excluding exports.]

“We also shut down our two of our refineries during last last year,” an IndianOil official said. The shutdown too would have impacted demand as the combined capacity of the massive plants was in excess of the total production from the Rajasthan block, he pointed out.