Slowdown in India's foreign trade compounds economic woes

A worker prepares to stack a container at Thar Dry Port in Sanand in Gujarat February 1, 2011.

NEW DELHI (Reuters) - A sharp slowdown in India's foreign trade added to the woes of Asia's third-largest economy and piled more pressure on the weak coalition government to take steps to boost economic growth.

Indian exports inched up 3.23 percent to $24.5 billion in April from a year earlier after falling in March, data released on Friday confirmed, a far cry from the more than 20 percent growth recorded in recent years.

India has been hit by falling demand from its traditional export markets such as the United States, which is struggling to bring down unemployment and Europe, where a sovereign debt crisis tipped many economies back into recession.

The export figures compounded an already gloomy economic picture - GDP data on Thursday showed the economy grew at its slowest pace in nine years in the first three months of 2012. The rupee has also tumbled to record lows this week.

There was fresh evidence of a slowdown in the manufacturing sector, which accounts for nearly 15 percent of the economy, on Friday as India's top automaker Maruti Suzuki (MRTI.NS) said its car sales in May fell 5.9 percent, dragged down by high fuel costs and an excise tax hike.

After the shock GDP data, Prime Minister Manmohan Singh awoke to newspaper editorials accusing him of weak leadership and demanding that he take action to arrest the economic slide.

He held a brief meeting of his economic cabinet on Friday evening, but the only item on the agenda was a proposal to lift a ban on the export of skimmed milk powder. One minister leaving the meeting said the economic situation was not discussed.

The meeting capped a bad week for Singh's government, which not only had to contend with awful economic news but a national strike on Thursday against a steep petrol price hike. The increase, a reform cheered by investors, is now expected to be partially rolled back within the next few days. Industry officials had initially said it could come as early as Friday.

Faced with a barrage of dismal economic data in the past few months, the government's chief strategy has been to blame the downturn on high global oil prices and the euro zone debt crisis, while insisting that this is a temporary blip and growth prospects are still good.

This has infuriated investors who say a string of policy u-turns by the government and its failure to take aggressive action to narrow its rising trade and budget deficits and encourage more foreign investment are also to blame.

PIECEMEAL APPROACH

"We believe policymakers' decision to continue the bad mix of growth since the credit crisis is at the heart of most of the macro challenges facing the country," Morgan Stanley economist Chetan Ahya said on Thursday.

The government has been criticised for its piecemeal approach to the economic crisis so far. Economists were sceptical about the impact of austerity measures announced on Thursday that included some curbs on government spending.

Singh on Friday also unveiled a new plan to fast-track delayed infrastructure projects to provide fresh impetus to the economy. More than 200 large state-funded road, port and oil pipeline projects are running behind schedule.

In the three years before the global financial crisis, India was roaring with growth above 9 percent and ambitions to challenge China as the world's top emerging economy.

Standard & Poor's cut India's credit rating outlook in April to negative from stable, worried by its fiscal and current account deficits. The decision jeopardises India's long-term rating of BBB minus, the lowest investment grade rating.

"There is no point blaming the Greeks or the Spaniards for India's economic woes. Nor are the usual suspects, the rain gods, at fault this time," India's Economic Times said. "Growth slowdown is essentially home-made."

Weather forecasters said there was another dark cloud that, unfortunately for India, may not be bearing rain. They said India's annual monsoon rains may be late this year but that it was not yet time to panic.

The rains are crucial for farm output and economic growth as about 55 percent of the south Asian nation's arable land is rain-fed, and the farm sector accounts for about 15 percent of a more than $1.5 trillion economy.

In 2009, poor monsoon rains led to the worst drought in nearly four decades, forcing India, a large producer and consumer of farm products, to import foodstuffs such as sugar at sky-high prices, hoisting global prices to record highs.

(Writing by Ross Colvin, additional reporting by Mayank Bhardwaj in New Delhi and Henry Foy in Mumbai; Editing by John Chalmers)