Oil, gold import to further dilate trade deficit
INDIA’S TRADE deficit could rise from $130.5 billion in 2010-11 to $428.3 billion in 2015-16 and become unsustainable with merchandise imports rising from $380.9 billion to $858.6 billion, says a study by industry body ASSOCHAM.
The imbalance is likely to be above $180 billion in 2011-12, it said.
The country’s merchandise export in 2015-16 is likely to stand at $430.3 billion, up from $250.5 billion in 2010-11 with export of manufactured goods rising from $101.6 billion to $119.6 billion. Export of petroleum products is set to rise from $41.9 billion to $51.2 billion in the same period.
On the flip side, said the study, oil imports will jump from $106.1 billion to $243.7 billion while gold imports will rise from $33.9 billion to $83.3 billion in the same period.
However, if capacity building of the industry takes place and competitiveness of Indian exports improves, then merchandise exports could stand at $549 billion in 2015-16 and the trade deficit would be $309.6 billion.
“There is need to curtail oil imports, or else there will be a severe burden on external payments position. The gold imports figure must also be decreased by educating domestic investors and encouraging substitution of gold purchases with alternatives from formal financial sector which will help in increasing the productive capacity of economy,” said DS Rawat, secretary general, ASSOCHAM, while quoting the study.
It is thus critical to enhance manufacturing capabilities along with improvement in technological content of products which would further translate into sharpening the export competitiveness in order to gain price advantage. Promotion of international trading houses will help develop strong international linkages.
The study said growing uncertainties in the Eurozone, slowdown in advanced economies and weakening of the domestic have adversely impacted India’s external sector outlook.
ASSOCHAM SAID India’s capital account rose almost seven times from $8.5 billion in 2000-01 to over $57.3 billion in 2010-11 with foreign investments being a major contributor. In times of uncertainty, it is likely that foreign investors pull out their money from India to take it back to their home countries. “Poor rules, inefficient processes and inconsistency of policies may also deter potential foreign direct investments,” it said.