The outlook for India's merchandise exports now looks set to improve over the next few months, giving rise to hopes that a positive growth will finally be recorded by January 2010. The exports data for September clearly shows that the rate of decline has dropped considerably, even as global demand has picked up.

One of the big strengths of the Indian economy till the global downturn set in last year was the buoyancy of its exports, rising at double digit levels for the last few years. This scenario was reversed last year as the worldwide demand for goods fell drastically.

From rising consistently every month, exports began recording a fall in the last fiscal. The low point was reached in May this year when exports fell by as much as 39 percent. But the outlook now is clearer and much better. The data for September shows the decline has slowed down to 13.8 percent.

This apart, the green shoots of recovery are becoming evident in the developed world and exporters are looking anxiously at the recovery signals in the US and the European Union as 40 percent of overseas shipments go to these two giant markets.

As per the latest data released by the commerce ministry, India's outbound shipments slid to $13.6 billion in September, after sliding 19.4 percent in August. Imports also dropped 31.3 percent on an annual basis to $21.38 billion compared to $31.14 billion in the previous year.

Yet, on the plus side, this brought the trade deficit to a manageable level of $7.77 billion in September, much narrower than $15.35 billion last year. Exports contracted by 28.5 percent to $77.9 billion in the first six months of the current fiscal (April to September 2009) from $108.9 billion in the same period last year.

With exports to the main markets of the US and Europe having crashed, the government has been trying to provide incentives to exporters to diversify to newer markets. Commerce Minister Anand Sharma has claimed there has been some partial success in this direction.

Sharma said that India's textile exports to Australia and New Zealand have acted as a cushion to check the sharp decline in exports. These two countries were part of the 39 "new thrust markets" identified in the new Foreign Trade Policy. The African markets are also now responding well to Indian products, giving rise to hopes that the country will go into the positive zone of exports in the next few months.

In fact, the government feels that exports will move to an uptrend by the last quarter of this fiscal in view of the diversification of the exports basket to new markets in the last few months. This optimism, however, is based on the expectation that global recovery will lead to a rise in demand for goods and services.

The worldwide recovery is crucial and even Finance Minister Pranab Mukherjee has made it clear that a return to nine percent growth will only be possible when the major markets of the US, the EU and Japan return to normal. Thus far, the outlook seems bright for a gradual recovery, as the US economy has finally returned to growth in the third quarter of 2009 while France, Germany and Japan have exited their recession in the last three months.

One clear indicator is the automobile sector, which is already witnessing a revival of sorts. India's top automaker Maruti Suzuki has reported a 100 percent rise in export of cars in October even as the US economy reported an expansion of 3.5 percent during the third quarter.

While these are positive signs, the government is also not waiting for a complete global recovery and is going ahead to enter into regional or bilateral trade pacts where possible. These include negotiations with the European Union and fresh rounds of trade talks with the US.

In recent talks between Minister Sharma and US Trade Representative Ron Kirk, the prospects for raising two-way trade in sectors such as infrastructure, health care, services, education, communications technology and energy were discussed. As for the proposed trade pact with the EU, negotiations have been under way for nearly three years, but differences remain over intellectual property rights, as also climate change and social sector issues.

At the same time, a successful conclusion of the negotiations could mean that both the EU and India would get better access to huge markets for goods and services. As of now, the negotiations do not cover public procurement, which India has been keeping out of the treaty. New Delhi is also concerned about tough certification procedures for fruit and vegetables - an issue that has been raised from time to time with the EU.

However, till the multilateral round of trade talks resumes in right earnest, India will have to pursue the strategy of tying up regional trade agreements to get preferential access for its products in the world's largest markets. Till last year, little urgency was seen in carrying out such negotiations even though the ASEAN-India free trade pact was concluded without much difficulty. In the current difficult external environment, such pacts have assumed much greater importance.

The revival of demand has also brought in its wake heartening news that jobless artisans who had returned to their villages are now coming back to major export centres such as Surat in Gujarat and Moradabad in Uttar Pradesh. The demand for traditional items of export such as gems and handicrafts has also picked up.

A resurgence in foreign trade, thus, not only brings in higher foreign exchange reserves but has a positive impact in terms of employment and overall growth. It is, therefore, clear that the goal of 9-10 percent economic growth is only possible once India's foreign trade returns to its earlier buoyancy.

* Sushma Ramachandran is an economic and corporate analyst. She can be reached at sushma.ramachandran@gmail.com

* The views expressed by the author in this feature are entirely the author's own and do not necessarily reflect the views of SME Times.