But there was a glimmer of hope in India's newest trade data. Export volumes rose for a second consecutive month, indicating an improvement in global demand, although it has still remained very fragile. While the pick-up in export volumes is comforting, its sustainability remains to be seen. Plus, despite weak export volumes, India's trade deficit has narrowed to $117.9 billion in FY16 from $137.7 billion in FY15, owing to lower commodity imports. On imports, the weakness has been largely due to price effects, while volume growth is positive, indicating gradually improving domestic demand.
In fact, the import contraction deepened to -21.6 per cent from -5.0 per cent, primarily owing to a sharp drop in gold imports. Consequently, the trade deficit narrowed to a five-year low of $5.1 billion from $6.5 billion in February.
Within exports, the pace of contraction in petroleum exports slowed to 21.4 per cent year-on-year from 28.3 per cent in February, due to waning base effects and a pick-up in crude oil prices. However, non-oil exports fell 3.5 per cent year-on-year vs a 2.7 per cent decline in February. The details were also not very encouraging with growth in both pharmaceutical (4.1 per cent year-on-year vs 8.8 per cent in February) and gems and jewellery (4.6 per cent year-on-year vs 11.2 per cent) exports slowing, and other key exports such as textiles, leather and engineering goods (-11.3 per cent year-on-year) contracting year-on-year.
The March trade data clearly indicated that export volumes have started improving though they are still at very low levels. On imports, the contraction has been largely due to price effects. Rising import volumes indicate that the underlying domestic demand, particularly consumption-related, is fairly robust. Capital goods imports, however, seem to be on a tenuous footing, likely reflecting weak private sector investment demand. That can be a sign of strength in the growth momentum of the domestic economy.