External imbalances

External imbalances

— The huge rise in crude oil prices and the run-away inflation that the country is experiencing in recent times has severly told upon India’s current account balances. In fact, a significant departure from the earlier trend was noticed since 2004-05 after experiencing a current account surplus for the preceding three years. The trend reversal set in since then with the deficit balance growing from $2.4 billion in 2004-05 to $9.7 billion in 2006-08 and to $ 10.7 billion in the first half of 2007-08. A distinguishing feature of India’s balance of payments since the beginning of the current century is that while the main driver of export growth in our country is invisible trade, particularly in the areas of private transfers comprising mainly remittances from overseas countries and export of software services besides tourism, that for outstanding Asian economies like China, Japan, Korea, Malaysia, Singpore, Taiwan, Thailand, etc have been their strong merchandise exports. Though surplus on net invisible trade is still ruling the course of India’s balance of payments at an increasing growth from $10.0 billion in 1997-98 to $14.9 billion in 2001-02 and onward to $31.1 billion in 2004-25 and to $53.4 billion in 2006-07, it is the increasing growth rate of deficit in trade balance that has surpassed whatever surplus could be achieved on invisible account. Thus, the adverse balance of trade went up from $9.4 billion in 1990-91 to $12.5 billion in 2000-01 and onward to $63.2 billion in 2006-07. In the estimate of Reserve Bank of India, the adverse balance of trade during the first half itself of 2007-08 did touch the $42.4 billion mark.Because of the spiralling inflation and balooning oil import bill, the current year scenario might be still worse in spite of the country’s export growth being maintained. Thus, our export growth accelerated in April, 2008 mainly on account of gems, jewelleries and other manufactured products and the shipments jumped by 31.5 per cent from a year earlier and faster than that of earlier month, March at 26.6 per cent. The previous year’s export growth was also helped by a weaker rupee which declined by 7.2 per cent. As against this, however, India’s import in April has gone up by 36.6 per cent to $24.3 billion, widening thereby the trade deficit for the month to an all time high of $9.87 billion. The situation might worsen in the coming months with the rupee recently showing appreciation which will favour import growth to the disadvantage of exports. If the trend continues, the current fiscal year might end up with can adverse trade balance of even more than $100 billion. Since imports cannot be curtailed in the inflation-ravaged economy beyond a limit, the quantum of exports and the size of market should be enhanced, particularly in African and some east-Asian countries. A tight resort to utmost economy in the use of oil must however, be pursued and the State and Central government sectors should set the example. Source: assam tribune