Opinion - Editorials   

In need of constant monitoring

The sharp increase in current account deficit need not be a cause for alarm but, as stressed in the mid-year review of the economy, needs constant monitoring. In the absence of any firm pointers to the contrary, the deficit level appears set to go up further in the near term. The recently released official data relating to balance of payments show a widening of the deficit in the first six months of this fiscal year (April-September, 2006). The figure was $11.7 billion, compared to $7.2 billion for the corresponding period last year. The trade deficit stood at $35.1 billion as against $27.1 billion for the same period in 2005-06. There has been a deceleration in the growth of merchandise exports, with the rate dropping from 34 per cent to 23 per cent. The same trend was noticeable in import payments too — the growth rate slipped from 34.5 per cent to 22.9 per cent. Oil imports recorded an increase of 37 per cent, while the rise in non-oil imports was a more modest 11.5 per cent. The increase in the oil import bill is attributed to elevated oil prices during the first half-year. Although there has been a moderation in oil prices since then, the average price of the Indian basket of international crude has remained substantially higher so far. In keeping with the recent trend, invisible receipts — software exports, professional services, transportation, and remittances from overseas Indians — have helped somewhat in softening the impact of current account outgo. The sharp rise in deficit is despite the net invisible surplus of $23.5 billion.

For a country used to having a current account surplus until three years ago, it is not the size of the deficit as much as the causes underpinning it that should engage attention. Unlike many emerging economies that continue to enjoy large surpluses, India boasts a robust economic growth that has drawn in outside investments to supplement domestic savings and investment. However, there is little possibility of the oil import bill coming down. Efforts to boost exports might require a cheaper rupee. The dependence on foreign capital inflows to bridge the gap in balance of payments, though unavoidable, has come at a price. Remittances from overseas Indians have not grown to the extent anticipated. As the Reserve Bank of India says, recent developments on the current account front point to growing openness and integration of the Indian economy with the global economy. However, the expected unwinding of global current account imbalances will require utmost vigil on the part of India.

Printer friendly page  
Send this article to Friends by E-Mail

Stories in this Section

A violation of the mind
In need of constant monitoring
Vietnam and India: scaling new heights
Polish airport at heart of CIA flights row
Corrections and Clarifications
Iraq now worse than under Saddam
Predicting the future
Appalling apathy
Army versus police
Saddam's execution

Copyright © 2007, The Hindu. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu