The country's exports fell 28.4% in July to $13.62 billion, posting a decline for the tenth straight month, as major global markets continued to reel under the economic downturn.
Imports also fell sharply, with both oil and non-oil imports registering a decline during the month compared with the year-ago period, according to government data released on Tuesday.
While exporters continue to face payment problems, difficult clients and shrinking orders in the global market, there is some hope that things may improve by the end of the calendar year. The optimism is based on expectations of an increase in orders ahead of Christmas and New Year and an improvement in the European economy. The sops announced in the foreign trade policy worth Rs 2,200 are also expected to boost demand.
A sharp 37% decline in July imports to $19.62 billion resulted in a steep fall in the trade deficit to $6 billion during the month, compared with $12 billion in July 2008. The commerce department, however, is not taking it as a positive development.
"When trade deficit is falling due to a decline in both exports and imports, it is not a cause to celebrate. In fact, it reflects a decline in domestic production activity," said a government official who asked not to be named. Exporters are still not sure whether they will get their payments, said Mukesh Mittal from Hari Overseas, a textile exporting company. "We are not being given any credit facility or any guarantee," he said.
Mr Mittal, who is one of the Indian exporters whose money got stuck when German retail giant Arcandor declared bankruptcy, is not sure when things would improve. "Things are fine in the UK, but Germany and France continue to be bad. Buyers are dictating unrealistic terms that we have no option but to accept," he said.
Christmas and New Year would ease the situation a bit, Mr Mittal said, adding "but those orders will not come before October".
According to trade expert Ajay Sahai of exporters' body FIEO, the decline in July exports is in line with global developments as most importing countries except Germany are showing negative growth. However, things are expected to improve in December-January. "In the European market, we are getting a feeling that the situation is improving. But we are not sure about the US market where we keep getting contradictory data," he said.
FIEO expects the export sops extended in the FTP announced last week to start showing results by the beginning of next year. "The sops will be factored into prices that we offer to our buyers for new orders," he said.