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India reels under huge trade deficit

Mail Today Bureau     February 10, 2012
With India's exports failing to keep pace with the surge in imports, the country's trade deficit has soared to $ 148.7 billion during the first 10 months (April-January) of the current financial year putting further pressure on the rupee.

Commerce secretary Rahul Khullar disclosed on Thursday that while exports grew by 10.1 per cent in January to touch $ 25.4 billion, imports jumped by 20.3 per cent to a whopping $40.1 billion on the back of skyrocketing prices of crude oil and vegetable oil in the international market.

The country's love for gold and silver is also adding to the problem as these items have turned costlier and are still being imported in large quantities.

The government has recently hiked the duty on these precious metals to discourage the inflow, which is costing the country dear in terms of foreign exchange as the current account deficit is widening and weakening the fundamentals of the economy.

A large current account deficit weakens the rupee vis-a vis the dollar, which makes imports even more costlier. Foreign travel for Indians also turns more expensive and those who have taken loans for studying abroad have to shell out more to banks.

The trade deficit for January works out to $14.7 billion.

Khullar said that the trade deficit for the entire financial year is expected to touch a phenomenal $160 billion.

The slowdown in India's exports spilled over into January as the overseas demand for Indian goods remained subdued due to the uncertain economic recovery in the US and sovereign debt crisis in Europe.

Khullar said that exports have slowed down in the last three-four months mainly because of slowdown of demand in the US and European markets.

From a peak of 82 per cent in July 2011, exports have turned sluggish with the growth rate coming down to 36.36 per cent in September 2011 and 10.8 per cent in October last year. The growth rate further plummeted to 3.87 per cent in November and has remained subdued at 6.7 per cent year for December 2011.

"What you are looking at now is exports for the fiscal of around $ 300 billion, imports at about $ 460 billion with a balance of trade of about $ 160 billion," the commerce secretary remarked.

Khullar, who likes to call a spade a spade, said, "2012- 13 would be difficult year for exporters." Looking ahead, Khullar said that due to reasons like prevailing uncertainty in the US and Europe economy, the next year would also be difficult for India's exports.

"Consumers and investors confidence are also not booming. My fiscal room for manoeuvre has gone. You have a tight fiscal situation; who is going to give you sops? If you will manage 20 per cent growth in 2012- 13, it will be damn good," he explained. .

However, he drew some solace from the fact that at a time when the forecast for global trade growth is in single digit, India's exports growth would work out to a double- digit figure due to the better performance in the first half.

Federation of Indian Exporters Organisations (FIEO) president Rafeeque Ahmed, too, said that these figures clearly indicate that 2012 would be a difficult year for exports in view of growing uncertainty in the Euro zone, slackening demand in other advance economies and third country effect on our exports to emerging economies.

Courtesy: Mail Today

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