India Official: Trade Gap Could Narrow

Son of Govinda

Regular Member
Apr 1, 2012
India Official: Trade Gap Could Narrow -

NEW DELHI -- Indian Commerce Secretary Rahul Khullar said the country can cut its burdensome trade deficit by 19% in the fiscal year that began April 1, assuming global oil prices stabilize, even as exports are likely to suffer from slumping demand in major world markets.

Mr. Khullar, the most senior bureaucrat in the Ministry of Commerce and Industry, said in an interview Wednesday that it is "workable" for India to reduce its trade deficit from $185 billion in the fiscal year ended March 31 to about $150 billion for fiscal 2012-2013. The current account deficit, which was about 4% of gross domestic product in the last fiscal year, could narrow to 3.5% this year, he said.

But, he cautioned, even those reductions would leave India with the challenge of securing substantial capital flows of about $50 billion to $60 billion from overseas. European banks that have traditionally provided such financing may not be in a position to lend, given the continent's economic troubles, so India may have to find other alternatives, such as accelerating foreign direct investment in key sectors.

"That's the real problem," Mr. Khullar said. "Where is the capital going to come from?"

India's trade deficit in the last fiscal year jumped 56%, sparking concerns of a coming balance-of-payments crunch for New Delhi if it doesn't find ways to boost exports or curb its spiraling import bill. Economists say the current account gap is already pressuring the rupee, which fell 18% against the dollar in the past year.

The trade gap widened in the last fiscal year largely because of a $50 billion increase in India's oil import bill, which was $156 billion, Mr. Khullar said. "If you're going to see growth rates in your imports of that order, the required growth rate for exports is so high that it's simply unattainable," he said.

But he was optimistic that crude import prices that rose 40% last year to $110 per barrel won't spike to that extent again in this fiscal year. India could withstand a further price increase of 5%, which would push its import bill up to about $164 billion in fiscal 2013, he said. That scenario is quite possible, he said, "unless some drastic event takes place."

Mr. Khullar predicted that a factory tax that has been extended to most gold jewelry will damp demand for the commodity after gold imports rose $19 billion last year. "When everything is going crazy -- asset prices are changing, exchange rates are going up and down like a yo-yo -- gold is nice and safe," he said.

Mr. Khullar said India also must urgently undertake reforms to increase domestic supplies of coal, fertilizer and other items that it is importing in huge quantities. Imports of coal, which fuels more than half of India's power supply, jumped 80% to $17.7 billion in the last fiscal year, he said.

Mr. Khullar said slumping demand in major economies, including the U.S., Europe, Japan and Brazil, will make it tough for India to grow exports at its 20% target this fiscal year. "With any luck," he said, India will achieve 15% export growth, which would bring total exports to nearly $350 billion in fiscal 2013. "Export markets are looking even bleaker this year than last year," he said.

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