Exchange rate depreciates to an over 2 year low, trade shrinks further

Data on merchandise trade for December 2015 released last week showed continuation of the trend seen over the past one year: further shrinking in both exports and imports. However, the latest numbers give some room to expect turnaround in the coming months. For one, the extent of decline has reduced, and non-oil imports actually showed positive growth, suggesting improvement in real demand. Further, in absolute terms, both import and export numbers reached a five month high. It is too soon to pass any verdicts, but the trend is worth watching.

The one economic indicator where the trend, however, is unquestionably downward, is the rupee exchange rate against the dollar, which reached an over 2 year low of INR 68 to a dollar, before recovering at the end of the week. Continued global financial uncertainty and economic weakness have contributed to the ongoing weakness in the rupee.

Reports from other quarters of the economy were mixed. Domestic air passengers carried in 2015 showed a robust 20% growth, and the Ministry of Power made further headway in electrifying villages. However, oil production was broadly down. Two of the three oil segments – crude oil and natural gas showed a decline from last year, though refinery production improved. Area under the rabi crop continued to lag by 3% from last year as well.

On the policy front, there was further progress on the electrification front, as the centre approved the setting up of grid connected solar projects, which are expected to generate 5,000 MW of power. Amendments to the tariff policy were also approved to allow for constant power supply at lower costs to consumers.

The Ministry of Skill Development and Entrepreneurship and Department of Telecommunications signed an MoU for skill development in the telecom sector, which is expected to employ 4.16 million people by 2022.

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