That the economic slowdown around the world would eventually impact Indian exports was generally accepted. Until August, the impact wasn't much in evidence, with the year-on-year growth rate of exports for the first five months of the year staying above the 35 per cent mark.

However, the September numbers, which were announced on November 3, seem more in line with expectations. Exports in dollar terms grew by a rather subdued 10.4 per cent over September 2007. This still takes the growth rate for the first six months of 2008-09 to a creditable 30.9 per cent, which is significantly above the 18.2 per cent achieved during the corresponding period last year, when the global economy performed much better.

Two implications of these patterns need to be considered. One, while the US remains the largest individual market for Indian merchandise exports, its significance is declining as other countries, particularly the relatively fast-growing emerging economies in Asia, become larger trading partners. This diversification is a useful hedge for Indian exporters. Export growth should, over periods of time, become less dependent on US business cycles.

In the immediate future, however, the sharp decline in the growth rate probably reflects the fact that US GDP growth, after clocking a relatively healthy 2.8 per cent in the April-June quarter, came down to minus 0.3 per cent during the July-September quarter. Much of this deceleration was attributable to September, going by the monthly indicators. Given that the US economy is expected to continue to weaken over the next couple of quarters at least, this does not bode well for the immediate future as far as exporters are concerned.

The saving grace comes from the movement of the rupee. Last year, the rupee was appreciating sharply. This meant that for a given rate of growth in dollar terms, rupee realisations were falling, putting enormous pressure on exporters who bore rupee costs. This year, the situation is reversed, with exports in rupee terms growing by 24.7 per cent in September and by 36.7 per cent during the April-September period.  Even as dollar realisations are slowing down, therefore, margins will hold up for a while, keeping more people in business.

Imports, on the other hand, surged by 43.6 per cent in September with oil imports growing by over 50 per cent. This does not capture the very sharp decline in oil prices over the past few weeks as a result of which, overall imports are likely to decelerate significantly over the coming months. Consequently, the trade deficit, which at $ 10.6 billion in September was more than double that of a year ago, is unlikely to widen significantly even if export growth is sluggish.

Of course, for the year as a whole, a trade deficit of around $ 100 billion or more ($ 60 billion in April-September) will pose a threat to the balance of payments, given the net outflows of capital currently afoot. Invisibles will do their bit, but are also likely to come under a bit of pressure with IT/ITES exports closely related to the state of the global financial system and remittances likewise dependent on oil prices.

While clearly not yet in a danger zone, numbers like these remind us that the tide can turn very quickly on the balance of payments. This is one more thing the government needs to think about in an already complex and unpredictable situation.