Painting a gloomy picture on external trade front, the Economic Survey on Thursday cautioned that the global slowdown, particularly in the US, will impact India's export growth in 2008-09 and advised the government for relief to exporters in the wake of a costlier rupee.

"The outlook for exports in 2008-09 may not be as bright as in the past few years with lower projections in world GDP and world imports and exchange rate developments," according to the pre-Budget Economic Survey tabled in Parliament.

India's exports stood at $111 billion in April-December 2007, registering a growth of 21.6 per cent. But it may fall short of the $160 billion export target for the year.

It said the two developments that need to be monitored are the fall in export growth to the US in general and fall in textile exports in particular to the US and EU.

"Though exports to the US have already been slowing in 2006 and 2007, a further slowdown may be unavoidable, but may be relatively modest. The slower Indian economic growth in 2007-08, relative to 2005-06 and 2006-07, may also have a temporary dampening effect on capital inflows," it said.

Emphasising the need for "some fundamental policy changes besides relief measures already given", the Survey suggested measures for merchandise trade sector.

The measures include continuation of reduction in customs duty resulting in low import duty, weeding out of unnecessary customs duty exemptions, abolishing export schemes that are redundant with fall in import duties and streamlining existing schemes.

There is also a need to check proliferation of special economic zones, evolve clear cut policy for beneficial Comprehensive Economic Cooperation Agreements even with some developed countries "instead of just FTAs and PTAs which should be well integrated with our economic and trade policy reforms."

Services trade: For this, the major areas where reforms can help sustain export growth are domestic regulations and reforms and market access for services, the Survey document said.

The rupee appreciated by 9.8 per cent against dollar between April 3, 2007 and January 16, 2008. During the first nine months of 2007-08, 69.4 per cent of the $160 dollar export target for the current fiscal has been achieved.

The Survey further said even as the external environment remained conducive to the nation's growth, the problems of managing "a more open capital account came to the fore in terms of the economy approaching the limits of its absorptive capacity".

It said while the situation of excess inflows is likely to remain, the pressure on reserve accumulation and exchange rate appreciation is likely to ease. 

"In the longer term, the solution to excess capital inflows lies in deepening productivity gains and addressing root causes of excess capital flows like interest differential and build-up of expectations on the rupee," it said.

In the long run, attempts to keep nominal exchange rates stationary would not be productive. "If exchange rates were not allowed to adjust and to reflect fundamental changes, expectations of appreciation can build up pressures that can result in steep changes in macro parameters. This can be costly to the very stakeholders that were to be protected from pain. A balanced approach is therefore appropriate". 

The Survey further said trade deficit would continue to widen in the current year based on the trends in the first six months of 2007-08. The current account deficit is likely to remain at moderate levels given the robust growth in invisible surplus, partly offsetting the rising trade deficit.

Gross FDI flows into India during the first six months of the current fiscal stood at $11.2 billion, which were moderated by outward investment of $7.3 billion to yield net flows of $3.9 billion.

Foreign exchange reserve at the end of February 8, 2008 was $290.9 billion. India's total external debt stood at $190.5 billion at the end of September 2007. 

• Economic Survey 2007-08: Complete Coverage