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INDIA'S imports fell 37% in July, outpacing a 28% drop in exports and appearing to paint a flattering picture of the trade deficit, although government officials cautioned the true situation was far from celebratory.

The steep fall in July imports—both oil and non-oil—to $19.62 billion resulted in the country’s trade deficit for the month halving to $6 billion from year-earlier levels, government data released showed.

"When trade deficit is falling due to a decline in both exports and imports, it is not a cause to celebrate. In fact, it reflects a decline in domestic production activity,” said a government official who asked not to be named.

The commerce department is especially concerned about the 24.5% decline in non-oil imports that includes a fall in import of machinery and capital goods. “We have to work towards reversing this trend as it would lead to supply-side constraints when the global economy starts looking up and the orders increase,” the official said.

Oil imports fell 55.5% to $5.6 billion largely on the back of a steep fall in crude prices.

Merchandise exports fell for the 10th straight month in July, little changed from the 27.7% drop in the preceding month, but at the same time a grim reminder that the optimism on the economic growth front is still to reflect in foreign trade data.

Exports fell to $13.62 billion in July, and while exporters continue to face payment problems, difficult clients and shrinking order books, there is hope the situation will improve by this yearend amid expectations of an increase in orders ahead of Christmas and New Year and an improvement in Europe. Benefits announced in the recent foreign trade policy worth Rs 2,200 crore are also expected to boost demand.

While Christmas and New Year would ease the situation a bit, Mukesh Mittal of textile exporting company Hari Overseas said “but those orders will not come before October”.

He said exporters are still unsure whether they will get their payments and that they are not being “given any credit facility or any guarantee”.

"Things are fine in the UK, but Germany and France continue to be bad. Buyers are dictating unrealistic terms, which we have no option but to accept,” said Mr Mittal.

Meanwhile, Ajay Sahai of FIEO said the decline in July exports was in line with global developments as most importing countries except Germany were showing negative growth. However, things are expected to improve in December-January.

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