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India’s trade deficit could narrow down by 19% this year: Khullar

27 Apr 2012 Evaluate

India could cut its trade deficit by a good 19% this year, as per Commerce Secretary Rahul Khullar. The trade deficit could come down provided oil prices stabilize, which have been the major drag on the import bill last year, and India too makes an effort to curb the imports of commodities like coal and fertilizers, which form a significant part of its imports. Exports on the other hand are not expected to rise by considerable amounts due to the ongoing recession abroad.

The main challenge that will face the Indian economy shall be capital inflows. Even after reducing the import bills, India will need capital inflows to the tune of $50 billion to $60 billion from overseas. This funding was traditionally provided by the European banks, which is now not possible given its economic troubles.  India will have to find other alternatives, such as accelerating foreign direct investment in key sectors to fund its capital flows.

India’s trade deficit stood at $185 billion in FY’12. As per Khullar, this can be brought down to $150 billion in FY’13. The current account deficit, which was about 4% of gross domestic product in the last fiscal year, could be narrowed to 3.5% this year.

FY’12 has been a relatively difficult year for India where trade deficit has jumped by a whopping 56% due to a steep rise in the prices of oil. As a result the rupee has gone down by a good 18% against the dollar. However it is hoped that this year will see a stabilization in the oil prices. Also imports of gold, which comprised of significant amount of imports last year, are expected to come down given the increase in the import duty of gold in the Budget and a relative stabilization of the economy.

Also, like stated earlier, efforts will have to be made to reduce coal imports, fertilizers and other commodities that from a significant part of the import bill. Coal imports have jumped by a whopping 80% in the last fiscal. 

As per Khullar, exports are expected to remain subdued in the next fiscal due to the ongoing recession. Infact export markets are looking even bleaker this year than last year. Hence given the situation, if lucky, India can expect a 15% export growth at max. 

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