Adding woes to sluggish economy, India's exports declined by 4.16 per cent to $25.68 billion in May due to unabated slump in global demand and slowdown in domestic industrial growth.
Imports dropped by a sharper pace of 7.36 per cent to $41.9 billion, signalling weakening of the economy especially with regard to fresh investments as inward shipments of plant and machinery fell by eight per cent, according to provisional data released on Thursday.
The trade deficit also narrowed to $16.3 billion during May, from $18.5 billion a year ago.
"We have also seen the IIP (index of industrial production) numbers. So you can correlate the reasons why exports have not done too well...," commerce secretary S R Rao said.
In the backdrop of an ambitious 20 per cent growth target in exports for the current fiscal, announced in the recently released Foreign Trade Policy, the Commerce Ministry is 'recalibrating its strategy' to find out a solution, he said.
Dismal export performance comes on the heels of disappointing industrial output that showed a mere 0.1 per cent expansion in April.
Contraction of demand in India's traditional markets, particularly in Euro zone economies is hurting exports, Rao said, adding that "(We are) still not out of the woods. . . bailing out of Greece and Spain is still work in progress".
Decline in exports in May were particularly witnessed in top exporting commodities like petroleum products (-26.07%), engineering goods (-15.67%), gems and jewellery (-9%) and readymade garments (-15.82%).
On the import front, gold and silver was down by about 51 per cent, while plant and machinery dropped 8
However, imports of crude oil were up 14 per cent.
Cumulatively, the imports have come down 2.42 per cent in the first two months of 2012-13 to USD 79.8 billion. On the other hand, exports have shrunk marginally by 0.69 per cent to $50.13 billion during April to May, 2012.
The Commerce Ministry, Rao said, is working with the industry to find ways to tackle the difficult economic situation globally.
"We need to look at alternate markets. Asean is showing positive signs, then there is Africa and Latin America. These are markets, where I think, we need to look more intensively. . .internal work is in progress," Rao said.
He exuded confidence that India would achieve 20 per cent increase in the country's merchandise exports this financial year over 2011-12.
"Absolutely, I don't think we need to have any doubt. this is not the first time, we as a country are passing through difficult times. Its been happening," he said.
Federation of Indian Export Organisations said the next few months will be challenging but with little stability in the euro-zone, exports will be back.
"Exporters should explore new markets and new buyers in the existing market to take full advantage of depreciation of rupee while simultaneously increasing their productivity through efficiency and cost cutting measures as a long term strategy to survive in world market," FIEO chief Rafeeque Ahmed said.
DGFT Pujari said the appreciation and depreciation of rupee doesn't help the country's trade.
"We would like a stable currency not a depreciated currency, a stable currency."
