India Exports Slow as Global Crisis Curtails Demand

India’s exports grew at the slowest pace in 18 months in September as a weakening global economy damped demand for the nation’s products.

By Kartik Goyal

Overseas shipments, which account for about 15 percent of the economy, rose 10.4 percent to $13.7 billion from a year earlier, after gaining 27 percent in August, the government said in New Delhi today. Imports increased 43.3 percent to $24.4 billion, widening the trade deficit to $10.6 billion.

“The global financial and economic headwinds adversely affected foreign demand for Indian manufactured goods,” said Gaurav Kapur, an economist at ABN Amro Bank in Mumbai. “The growth of total incoming new work to the Indian manufacturing economy lost considerable momentum.”

Flagging exports and waning domestic demand are forcing companies in India to cut production, weakening growth in an economy expected by the central bank to expand at the slowest pace in four years. Sales overseas are slowing as the global credit crunch crimps spending by customers in Europe and the U.S., Asia’s biggest overseas markets.

“The financial crisis has exacerbated a global downturn that was expected earlier but is now likely to be more severe and prolonged,” Prime Minister Manmohan Singh told a meeting of businessmen in New Delhi today. “A crisis of this magnitude was bound to affect our economy and it has.”

Rate Cut

To spur local demand and shield India’s $1.2 trillion economy from the global slowdown, the central bank on Nov. 1 unexpectedly cut interest rates for the second time in two weeks and reduced the amount of money lenders must hold in reserve.

The Reserve Bank of India lowered its repurchase rate to 7.5 percent from 8 percent, reduced the amount of deposits that lenders need to set aside as reserves to 5.5 percent from 6.5 percent, and cut the amount of money lenders are required to keep in government bonds to 24 percent from 25 percent.

“We recognize that the situation is abnormal and we need to be constantly on the alert,” Singh said. “The situation is being watched on a day-to-day basis and more steps will be taken if required.”

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