Provisional data on India’s merchandise trade for the first half of the current fiscal year (i.e., April-September 2006) and commodity-wise details for April-July 2006 furnished by the Directorate General of Commercial Intelligence and Statistics (DGCI&S) indicate the following:

• Merchandise exports posted a growth of 23 per cent in US dollar terms during April-September 2006 (34 per cent a year ago) mainly driven by the export of petroleum products
• Exports of manufactured products during April-July 2006 showed deceleration, even while engineering goods maintained strong growth.
• The overall imports growth during April-September 2006 showed moderation.
• Oil imports increased by 37 per cent during April-September 2006. The Indian basket of crude oil price registered a year-on-year increase of 25 per cent. In volume terms, oil imports increased by 19 per cent during April-July 2006.
• Non-oil imports decelerated sharply due mainly to the decline in the imports of gold and silver and pearls, precious and semi-precious stones.
• Capital goods imports posted a growth of 40 per cent reflecting strong domestic investment demand.
• The trade deficit widened to US $ 24.6 billion during April-September 2006 from US $ 22.3 billion a year ago.

India’s merchandise exports maintained the growth momentum during September 2006 registering a year-on-year growth of 22 per cent in US dollar terms (Chart: 1, Statement 1). The cumulative exports during April-September 2006 recorded a growth of 23 per cent, albeit

lower than the 34 per cent witnessed during the corresponding period of the previous year (Table A, Statement 2).

Commodity-wise data for April-July 2006 displayed divergent trends in export performance. Exports of petroleum products posted a growth of 125 per cent in US dollar terms accounting for 42 per cent of the increase in total exports. Agricultural products also posted a high growth while manufactured products showed a moderation in growth.

* Prepared in the Division of International Trade, Department of Economic Analysis and Policy. Previous issue of the article was published in RBI Bulletin, October 2006.

Agriculture and allied products registered a strong growth during April-July 2006 mainly due to the surge in the exports of sugar and raw cotton. The increase in the exports of raw cotton was mainly attributable to the pick up in exports to China which accounted for 65 per cent of the export growth. Indian exports to China was largely fuelled by increased demand from Chinese textile manufactures after the phase out of quotas in 2005 and increasing freight charges that made them turn to the immediate neighbours. However, the increase in the export of traditional items like tea, coffee, tobacco and spices was partly offset by the decline in other traditional items like, rice, wheat, cashew and marine products. The increase in exports of tea was mainly due to higher off take by Qatar, Cambodia, Pakistan and Egypt. According to the Tea Board, India’s export of tea in volume terms increased by 23 per cent during April-August 2006 while in US dollar terms it declined by 0.1 per cent.

The growth rate of manufactured exports decelerated to 17 per cent during April-July 2006 from 30 per cent a year ago. Nevertheless, among the major items in the manufactured goods category, engineering goods maintained its growth momentum posting a growth of 34 per cent during April-July 2006 with significant contributions by machinery and instruments, manufactures of metals, iron and steel and electronics. Transport equipments, however, showed a deceleration in growth due to reduced demand from the major markets of Singapore, France, UAE and Italy. Exports of chemicals and related products also registered a deceleration during April-July 2006. The export of basic chemicals and pharmaceuticals, the major component of chemical exports, however, posted a growth of 25 per cent.

Textile and textile products, a major item in India’s export basket displayed deceleration during April-July 2006 with exports of readymade garments, the principal component of textile exports, registering a lower growth of 15 per cent (32 per cent a year ago). The deceleration was mainly due to the lower off take of RMG cotton by the major markets of the UK, Germany and Spain. According to the US Department of Commerce, Office of Textiles and Apparel, India’s exports of textiles and apparel during April-August 2006 increased by 11 per cent in US dollar terms (27 per cent a year ago) while in volume terms it increased by 17 per cent (19 per cent a year ago).

Exports of gems and jewellery witnessed a decline during April-July 2006 due to the reduced demand from the markets of the US, Hong Kong, Belgium, Israel and Japan. According to the Gems and Jewellery Export Promotion Council, exports of gems and jewellery during April-September 2006 declined by 6 per cent, mainly on account of cut and polished diamonds which showed a decline of 16 per cent.

Petroleum products registered a growth of 125 per cent during April-July 2006, reflecting the increase in both price and volume. In volume terms, petroleum exports increased by 66 per cent during April-July 2006 (15 per cent a year ago). Singapore and UAE were the major markets together accounting for 56 per cent of the total increase in petroleum exports.

While the contribution of petroleum products and agricultural and allied products to the total export growth has increased compared to a year ago, the share of other commodity groups declined. The decline was pronounced in the case of gems and jewellery which made a negative contribution of 0.08 per cent during April-July 2006 as compared to 12 per cent a year ago. The relative performance of chemicals and textiles also declined, while engineering products maintained its relative importance in export growth (Chart 2).

Destination wise, exports to OPEC countries recorded the fastest growth of 58 per cent during April-July 2006. Exports to the UAE posted a growth of 72 per cent thereby raising its share in total exports to 10 per cent (8 per cent a year ago). Exports to the US, the largest export market of India, also maintained the momentum of strong growth. Among other major markets, exports to China and Singapore recorded increase, albeit at a decelerated rate (Statement 4).

The total imports recorded an increase of 19 per cent during April-September 2006 as compared with 47 per cent growth a year ago. The commodity-wise data for April-July 2006 suggests that the deceleration in imports growth was mainly due to the decline in the imports of gold and silver and pearls, precious and semi-precious stones. The imports in other segments recorded strong growth.

The imports of petroleum, oil and lubricants (POL) increased by 37 per cent during April-September 2006, reflecting the impact of the increase in international crude oil prices and also volume growth. The average crude oil price (Indian basket)¹ recorded a year-on-year increase of 25.3 per cent during April-September 2006 (Table B). In volume terms, oil imports increased by 19 per cent during April-July 2006 as against a decline of 3 per cent a year ago. The pick up in the volume of POL imports was in sync with the increase in exports of petroleum products. According to the Petroleum Planning and Analysis Cell, while indigenous production of petroleum products increased by 12 per cent during April-August 2006 domestic consumption increased by 2 per cent.

The growth in non-oil imports decelerated to 11 per cent during April-September 2006 from 48 per cent a year ago underpinned by the decline in the imports of gold and silver (32 per cent) and pearls, precious and semi-precious stones (32 per cent). Non-oil imports net

of these two items registered a growth of 29 per cent during April-July 2006 (50 per cent a year ago).

Capital goods posted a growth of 40 per cent during April-July 2006 on top of 51 per cent growth registered a year ago. Alongside, domestic production of capital goods also registered a sharp growth at 19 per cent during April-August 2006 (14 per cent a year ago) indicating the buoyancy in industrial activities.

Trade deficit widened to US $ 24.6 billion during April-September 2006 from US $ 22.3 billion a year ago mainly due to the increase in oil import (Statement 2). The non-oil trade deficit declined by 26 per cent to US $ 3.5 billion during April-July 2006, while the deficit on the ‘oil’ account widened by 23 per cent to US $ 12.3 billion during this period.

Global economy moderated in the second quarter of 2006 with growth slackening in the US and Japan. The real GDP in the US increased at an annual rate of 2.6 per cent in the second quarter of 2006 compared with 5.6 per cent in the first quarter. Similarly, Japan’s real GDP moderated to 2 per cent in the second quarter from the 3.6 per cent in the first quarter. In the Euro Area, the growth momentum was, however, sustained with real GDP growing at an annual rate of 2.6 per cent in the second quarter of 2006 (2.1 per cent in the first quarter of 2006).

In the sphere of trade, the growth momentum was maintained in the second quarter of 2006 in almost all regions (Table C). The growth rates in exports and imports improved in major economies.

In the US, according to the US Bureau of Economic Analysis (BEA), exports during January-August 2006 increased by 14.1 per cent (11.2 per cent a year ago), while imports increased by 13.9 per cent (13.6 per cent a year ago). According to the Euro stat, exports from euro area increased by 11 per cent during January-August 2006 (6 per cent a year ago) while imports registered a growth of 17 per cent (12 per cent a year ago).

According to Japan’s Ministry of Finance, exports from Japan registered a strong growth of 16 per cent during January-July 2006 (5 per cent a year ago), while imports posted a growth of 23 per cent (16 per cent a year ago).

In developing Asia, China maintained the momentum of high growth during January-August 2006 with exports registering a growth of 26 per cent (32 per cent a year ago) and imports posting a growth of 22 per cent (15 per cent a year ago). Similarly, exports from Thailand increased by 17 per cent during January-August 2006 (15 per cent a year ago).

Oil prices receded after reaching the historic high on August 9, 2006 (Chart 3). The average international crude oil prices (comprising Dubai crude, UK Brent crude and West Texas crude) at US $ 62.1 per barrel in September 2006 was 13 per cent lower than the prices registered a month ago. As per the latest data, the average

international crude oil price during October (up to 20th October) stood at US $ 58 per barrel.

According to the OPEC (Monthly Oil Market Report, October 2006), the easing of tensions in the Middle East amidst steady OPEC supply, high stock levels and uncertainties about global economic prospects, particularly in the US, have resulted in lower prices.

Prices of non-energy commodities also declined during September 2006. The decline was sharp in the case of raw materials which dropped by 6 per cent from the previous month. Similarly, agricultural commodities also registered a decline of 3 per cent in September 2006 from the levels registered a month ago.