Official data released on Monday tell a disturbing story about Indian merchandise trade, and about economic stability on the external account more generally. The headline bad news will be, of course, that India's exports dropped in December 2015 for the 13th straight month. This slump - a fall of around 15 per cent - can no longer be accounted for purely in terms of declining petroleum prices. It is true that refined petroleum products are a notable proportion of India's export basket, and the sharp reduction in the price of crude oil globally has caused this trade to decline equally sharply in value. But even non-petroleum exports fell in December by 7.9 per cent in dollar terms.

Yes, the long decline in Indian exports does indeed coincide with slowing growth in world trade. But, it is not the case that world trade is actually declining; over the months of the exports slump, world trade has continued to grow at an average of around three per cent annualised, although it has shown signs of weakening further in recent months. In other words, in spite of the government's claims of pushing exports, India is under-performing even given poor global trade growth. This under-performance is clear from examining India's peer countries, which have seen good exports growth. Between July and December of 2015, months that India's exports were slumping, Bangladesh in fact saw exports grow by eight per cent year-on-year. Vietnam saw exports grow 9.2 per cent in 2015. This is a severe indictment of India's trade policy and the government's handling of exports.

The implications of the data for the trade deficit are also worrying. In December 2015, the trade deficit in dollar terms was 27 per cent higher than it was in December 2014. Cumulatively, however, the trade deficit for the first nine months of the current financial year was 11 per cent lower compared to that in the same period of 2014-15. This may make the trade deficit challenge look manageable as strong inflows on the capital account have beefed up India's external sector ever since the "taper tantrum" rocked emerging markets in 2013. But continued confidence about the external account is misplaced. Relying on fickle global capital is risky, particularly when sentiment on emerging markets is turning negative and there has been significant selling of Indian equities by foreign institutional investors. In addition, the government recovered from that period of weakness largely due to restrictions on the import of gold and the decline in the price of crude oil - the price of a barrel of the Indian basket of crude was just under $27 on January 15. Risks to the external account come not just from a possible increase in the price of crude oil from these lows, but also from a recovery in import demand - particularly for gold.

The December numbers for imports should, therefore, be scrutinised very carefully. In dollar terms, the import bill fell 3.9 per cent - not as much as it had fallen in prior months. Interestingly, however, imports in December, excluding oil and gold, fell by a lower rate of around two per cent. This is much lower than the 22 per cent decline in November for non-oil, non-gold imports, which reflect investment demand in the economy. But for the first nine months of the current financial year, non-oil, non-gold imports have declined by a little more than three per cent. The structural drivers of external weakness are, therefore, very much present and beginning to reassert themselves. Gold demand is once again on the rise. The gold import bill for 2015 was estimated at being 12 per cent higher than for 2014. It is doubly necessary, therefore, to examine the reforms necessary to make financial saving more attractive - and to re-energise exports through reducing red tape and integrating with new, behind-the-border trade agreements.