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India Extends Export Support as Trade Deficit Weighs on Growth

India extended support for exporters to tackle the nation’s trade deficit, stepping up efforts to revive Asia’s third-largest economy.

The government will prolong a policy providing subsidized credit to some exporters through the 12 months to March 2014, Commerce Minister Anand Sharma said in New Delhi today. The measure will be widened to include more businesses, he said.

Indian exports have fallen for seven straight months as Europe’s debt crisis curbs overseas sales, the longest stretch of declines since the 2009 global recession. The effort to spur shipments extends a government push since mid-September to boost the rupee and support economic growth, which the Finance Ministry predicts will slow to a decade-low this fiscal year.

The subsidized credit program applies to all small- and medium-sized enterprises, and has been extended to engineering goods such as hand tools, electrical machinery and boilers, Sharma said in his briefing. Certain exports through the Export-Import Bank of India will also qualify, he said.

The rupee, down about 4 percent against the dollar in the past year, strengthened 0.2 percent to 54.875 per dollar as of 2:53 p.m. in Mumbai, while the BSE India Sensitive Index rose 1 percent.

The trade deficit was $175.5 billion in January-to-November, compared with $146.9 billion in the same period a year earlier, Sharma said. The wider gap is a “cause of concern,” he said.

The government’s so-called interest subvention scheme, under which exporters get a 2 percentage points discount on bank lending rates, was extended to toys, sports goods, processed agricultural products and readymade garments in June.

‘No’ Demand

It earlier applied to handlooms, handicrafts, carpets and other small manufacturers. Sharma didn’t specify the cost of the subsidized credit initiative.

“Whatever steps India takes will not help to revive exports because there is no external demand from Europe or the U.S.,” said N.R. Bhanumurthy, an economist at the National Institute of Public Finance and Policy in New Delhi.

Prime Minister Manmohan Singh’s administration snapped months of policy paralysis in September by curbing energy subsidies to tackle a budget shortfall and opening industries including retail to more foreign investment. It also set up a panel in December to try and speed up infrastructure projects.

Gross domestic product will rise 5.7 percent to 5.9 percent in the 12 months that began April 1, less than an earlier estimate of as much as 7.85 percent, according to the Finance Ministry.

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