The Commerce Ministry on Friday revised upwards its estimates of the trade
deficit (export-import gap) for 2011-12 to a record $175-180 billion. This is
around 9-10 per cent of the country’s GDP.
The initial trade deficit estimate for this fiscal was $130-145 billion,
which was later revised to $155-160 billion. The trade deficit in 2010-11 was
$130.5 billion (according to RBI data).
The latest revision in trade deficit followed imports in February outpacing
exports, resulting in the trade deficit widening for the second successive
month to $15.2 billion. The trade deficit for January was $14.7 billion.
The Commerce Secretary, Dr Rahul Khullar, told presspersons that exports
for 2011-12 would be around $292-298 billion, while imports for this fiscal
could go up to $470-475 billion. He said the trade deficit for this fiscal
could touch a higher than expected $175-180 billion.
(Exports during April 2011-February 2012 were $267.4 billion, while imports
during the period were $434.2 billion, widening the trade deficit to $166.8
billion).
The oil import bill — which has already risen 41 per cent to $132.6 billion
during April-2011-February 2012 — is the main reason for the rise in imports
and, in turn, an increase in trade deficit. The increase in oil imports can be
attributed to the hike in oil prices, which have now touched over $120 a
barrel.
Elaborating on the reasons for the ballooning of the trade deficit, Dr
Khullar said, “The export growth rate fell faster than the import growth rate,
as a result of which you have a situation in which the balance of trade in the
last four-five months has been significantly higher than it was in the first
six months in this fiscal.”
Though not as much as exports, imports have also witnessed a slowing down
due to the weakening of the rupee (against the dollar), increasing the cost of
imports.
As the average trade deficit every month during April-September 2011 was
only $10-11 billion, the expectation was that it would touch only $130-145
billion this fiscal, Dr Khullar said. However, during the last five months, the
average monthly trade deficit rose to $14-16 billion, he added.
The Government usually relies on partially bridging the deficit on the
trade (merchandise goods) account through a surplus in ‘invisibles’ earnings
from remittances, software and other services exports.
However, if the trade deficit touches $180 billion, it would mean that the
current account deficit (CAD) for the fiscal would be higher than expected.
A country runs a CAD when its total imports of goods, services and
transfers is more than its total export of goods, services and transfers, in
turn making it a net debtor to the world.
The Prime Minister’s Economic Advisory Council (PMEAC) recently projected
CAD for this fiscal at 3.6 per cent of the GDP (or $66.8 billion). This is even
higher than a CAD of 3.1 per cent of GDP in 1990-91, a year when the country
was hit by a balance of payments crisis, which in turn led to economic reforms
steered by the then Finance Minister, Dr Manmohan Singh.
The PMEAC had projected the trade deficit to be $175 billion (9.3 per cent
of GDP), with exports seen at $304 billion and imports at $479 billion.
“There is a need to take measures to ensure that the CAD is stabilised at a
lower level of around 2-2.5 per cent of GDP,” the PMEAC said.
To be able to finance the large CAD in a manner that does not stress the
external payment account, the PMEAC said, “There must be a clear focus on
facilitating capital inflows, especially of equity.”
It also suggested reducing gold imports. Gold and silver imports for April
2011-February 2012 have risen 38.5 per cent to $55 billion as these are seen as
safer assets for parking money.
“The best means of limiting the appetite for gold is
to work towards making other kinds of assets more attractive, especially such
financial assets as lend themselves to ready mobilisation for funding
infrastructure and industrial asset creation,” the PMEAC said
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