India's external debt nearly trebles as trade deficit widens

Discussion in 'Economy & Infrastructure' started by Raj30, Feb 20, 2013.

  1. Raj30

    Raj30 Senior Member Senior Member

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    India's external debt nearly trebles as trade deficit widens - The Times of India

    COIMBATORE: With the trade deficit increasing, the country's external debt has nearly trebled and has the potential to fuel an already high inflation. The external debt has risen to $365 billion in the third quarter of 2012 from $137 billion during the same period in 2006.

    "These rising deficits are being financed by increased foreign-currency borrowing, raising India's vulnerability to international financial volatility," Moody's Investors Service, a division of ratings agency Moody's said. "Wider trade deficits can also weaken the currency, raising domestic prices of imported commodities, further fueling India's already high inflation rate," said Atsi Sheth, Vice President - Senior Analyst, Sovereign Risk Group, Moody's Investors Service.

    Though the country' external debt rose to $206 billion from $94 billion between 1997 and 2007, there was a fall in ratios of debt/foreign exchange reserves and debt/current account receipts. But these ratios have been increasing since 2007, Moody's said. "Should the current trend of more rapid growth in debt and import payments than export earnings and non-debt inflows persist, these ratios, and thus India's vulnerability to external shocks, will deteriorate significantly," it warned.

    Merchandise trade deficit widened to $20 billion in January from $17.7 billion in December 2012, official data released last week showed. International ratings agencies view the trend of higher trade and current account deficit as 'credit negative'. The country's trade deficits averaged about $13.5 billion a month in 2011 and $16 billion a month in 2012, up from an average of $9.5 billion a month between 2008 and 2010.

    The increase in trade deficit over the past two years is largely on account of slowing global growth, which has lowered demand for Indian exports, rising prices of oil and gold, which respectively accounted for about 35% and 10% of the country's merchandise imports during the third quarter of 2012 and loose fiscal policy, Moody's said. Loose fiscal policy stimulates domestic demand, and thus demand for imports, it said.

    "Loose fiscal policy also fuels domestic inflation, which erodes the competitiveness of both export and import-competing sectors, further widening the trade gap," said Andrew Schneider, Associate Analyst, Sovereign Risk Group, Moody's Investors Service. Slowing exports and firmness in gold and crude oil prices are unlikely to turn significantly benign in 2013. "Therefore, an improvement in India's trade balance will require a shift to policies to enhance domestic competitiveness," Moody's said.
     
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  3. SLASH

    SLASH Senior Member Senior Member

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    We need more banking reforms, lower interest rates so that our business can grow. Getting funds is such a hassle these days.
     
  4. cinoti

    cinoti Tihar Jail Banned

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    your banking staff is on strike now... if you reform it, you might see more strikes.
     
  5. Prometheus

    Prometheus Regular Member

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    Ironically there is currently so much jingoism in India about the future predictions of 2025-50, that were made 5 years back, that no one is really concerned about these warnings .... they believe that no matter what India does right now (even if they go to sleep right away ) India will make it to the top 2 economies by 2050 . They just take solace in the fact that we are better than Pakistan and Bangladesh . If things continue the way they are, like no nuclear power cause locals object , rampant corruption because of the chalta hai attitude , no SEZ's because farmers protest, Lefts opposition to FDI, no steps on Population control, Infrastructure projects take 10-20 years to get implemented because the environmental agencies dont clear it .... India will soon turn into a failed state with acute shortage of food, electricity and water
     
    Last edited: Feb 22, 2013
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  6. no smoking

    no smoking Senior Member Senior Member

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    It is not your banking sector! It is your whole industry department can't produce profit from international trade!
     
  7. SLASH

    SLASH Senior Member Senior Member

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    Low cost is only achievable with higher volumes. Which mean more investment and higher productivity. That is only possible with a relaxed monetary policy and banking procedures. At the moment it takes forever to get funds. If you are well connected you can get funds very easily. But if you are an entrepreneur it is very difficult to get loans.
     
  8. SLASH

    SLASH Senior Member Senior Member

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    It will happen sooner or later. Better now so that we can see the impact of these strikes diminishing. Banking reforms also means removing unnecessary procedures and paperwork that slows down the loan application process.
     
  9. hello_10

    hello_10 Tihar Jail Banned

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    if external debt of India is at around $365billion right now, it has foreign reserve at around $290billion also which means for buying debts of US and other countries???? I mean, India itself keep around $290billion in the foreign countries this way, mainly in US????

    at the same time, India not only have foreign investment but also it has Investment in foreign countries as below???? widening trade deficit is an issue and it requires further depreciation of Indian rupees to make the import expansive enough to be imported, thats it. and if we have a look on the inflation India had since 2006, around 6.5% on average inflation since 2002, while 1USD = Rs 50 even in 2002, then there is no reason why India won't depreciate its currency to at least at a reasonable level which may reduce its import in the same way.....

    Indian Rupee to US Dollar Exchange Rate Graph - Feb 24, 2003 to Feb 21, 2013

    we find Indian companies making around $2.0 billion to $4.0 billion foreign investment every month as below: (I couldn't find total overseas investment amount, can someone do this?)
    there is no problem on the external trade level except the fact that Indian Rupees would stand at around 1.0 INR = 1.5 Pakistani Rupees and 1.0 Yuan = 10 INR. and hence its true level would be at around 1.0 USD = 65 INR, somewhere close to it :thumb:
     
    Last edited: Feb 22, 2013
  10. panduranghari

    panduranghari Senior Member Senior Member

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    India is looking at financial crisis ala 1991. We are going for BOP crisis. The west has no gold, india has loads. Easy way for west to acquire Indian gold is for situation to worsen.

    Petrol is perhaps going to treble in price from todays rates- it has to. It accounts for biggest import bill. Socialism can take a country into quicksand, and we are already in this bog.

    Consequences:
    Food becomes expensive
    Depopulated cities as people move back to villages to seek access to food
    Realty values crash
    Wide spread unrest


    Even if UPA 3 comes to power we may for the very first time see something like storming the bastille in India.


    Sent from my iPhone 5 using Tapatalk
     
  11. arya

    arya Senior Member Senior Member

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    only farmer can safe the nation

    jai kisan every Indian farmer should take all thing ...

    [​IMG]
     
  12. hello_10

    hello_10 Tihar Jail Banned

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    sir Gold has shown its price increase in the same way as oil price increase since 2003. there was almost similar increase in Gold price as Oil price, making Gold the best Return On Investment (ROI). hence buying gold has been a good sign, both for the aspect of high return on an investment, and also it has shown its export tendency too in the first quarter of 2009 when rupees suddenly got depreciated to the level 1 USD = Rs 50, from 1 USD = Rs 40 in just 3-4 months of that recession period. making the Gold price expansive in Indian market this way, than its $ value in the international market, hence was exported that time to help India maintain respect on the trade side during the recession period. as below:
    I meant to say in my last post#8, that due to around 6.5% annual inflation since 2002, the prices of home products are around twice expansive this way, while the currency was depreciated by around 10% only since late 2002, making the import cheap this way as China suffered very less inflation during this period, making their products cheap enough to beat the Indian home manufactured products this way. and the same is true in case of import from Europe, where India suffers heavy trade deficit as below. even if depreciation of rupees will have an impact on the petrol/diesel prices, we do know that this item has a share of around 40% in Indian import bill and we can't import it more than this, so we do need to make them expansive enough to be less imported...............

    you can't have luxury of cheap imported products, and you do need to keep INR somewhere around 1.5 Pakistani rupees to 1 Yuan = 10 INR to reduce import bill by making import expansive enough :thumb:
    rest, India is a Net Food Exporter so we dont have this problem "at present".
     
    Last edited: Feb 22, 2013
  13. no smoking

    no smoking Senior Member Senior Member

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    Yes, attracting investment funds is not a easy job. But You can skip it. It is a necessary step in industrilization. Japan did it, korea did it, Taiwan did it and China just did it recently! Now it is the turn of India to figure out.
     

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