 "Economy's structural rigidity, global crisis key factors behind trade gap")
The rise in trade deficit was not as high as over 78 per cent in April-December 2011-12, but it represented continuous pressure on India’s trade even over a high base.
Exporters’ body Federation of Indian Export Organisations (FIEO) expects trade deficit to reach $195-200 billion in 2012-13 against $185 billion in the previous financial year. Already till January, trade deficit has widened to over $167 billion against $155 billion in the year-ago period, data by the Commerce Department revealed. (TRACKING TRADE)
While oil and gold imports are blamed for high trade deficit, overall merchandise imports marginally went up 0.36 per cent to $365 billion in April-December 2012 against $364 in the corresponding period last year. In fact, merchandise exports put pressure on trade deficit much more, as these contracted 6.47 per cent to $211.5 billion against $226 billion due to slackening demand overseas.
Exports saw pressure coming from ores and minerals, whose outbound shipments declined 34 per cent to $3.9 billion against $6 billion over the period due to restrictions on mining. Of these, exports of iron ore came down 63.6 per cent to $1.2 billion during April-December from $3.3 billion a year ago.
High value-added engineering goods, which have the highest 19.33 per cent share in India's exports, contracted 5.7 per cent to $41 billion against $43 billion as global recovery fails to take a solid move towards recovery. Among engineering goods, iron and steel bar rod declined 22 per cent to $827 million from $1.06 billion.
Petroleum products, which till recently had the highest share in India's exports, fell close to five per cent to $40 billion against $42 billion, also due to low demand in the advanced world. Its share in exports stood at 18.86 per cent in the first nine months of the current financial year, second to engineering products.
Gems and jewellery exports declined 11 per cent to $31 billion against $35 billion. It has the third highest share in exports at 14.6 per cent. Recently, a gems and jewellery association blamed the hike in customs duty on gold for strangulating India's gems and jewellery exports.
However, chemicals and related products that had 14.6 per cent share in exports rose 14.6 per cent to $31 billion during April-December, compared with $29 billion in the previous corresponding period.
Even as agriculture and allied products exports rose 30 per cent to $24 billion from $18.65 billion, those of pulses declined 20.21 per cent due to fall in production.
Leather and leather products saw exports contracting 2.43 per cent to $3.54 billion from $3.62 billion. The products constituted the lowest 1.86 per cent of India's exports, but are a crucial item from the point of view of the numbers of labourers employed. Similarly, other labour-intensive products like textiles and handicrafts, too, declined. However, carpets rose 13.48 per cent to $721 billion against $635 billion.
Imports and oil
So far as imports are concerned, oil still constituted India's largest demand from overseas countries. Its imports rose 12.81 per cent to touch $125 billion against $111 billion in the first nine months of the current and the previous financial years, respectively.
"International oil prices were not as elevated as was earlier. Had it been at the level of $147 a barrel, the trade deficit would touch $250 billion in 2012-13," FIEO director general Ajay Sahai said.
Usually, non-oil imports are considered to be good for economic activities, but here their components become all important. Non-oil imports declined 5.1 per cent to $240 billion in the nine months against $253 billion.
Gold, another important item to pressure imports, fell 14.71 per cent along with silver to $39 billion against $46 billion. It constituted close to 11 per cent of India's exports.
While the government has raised customs duty on gold to six per cent from four per cent in December, gold still remained a lucrative option, given high inflation and not-so-robust real estate markets and other financial instruments in terms of appreciation, explained an analyst.
Cement, though constituting a small portion of 0.02 per cent in India's imports, were up 34.43 per cent at $71 million against $53 million. Imports of cement, however, signify expansion of activities in the economy, particularly infrastructure sector that propels growth.
As sugarcane production is expected to fall this crop year (July 2012 to June 2013), sugar imports rose a 992 per cent to $366 million against $33.56 million. The government has estimated sugarcane production to be 334.54 million tonnes (mt) in 2012-13 crop year against 361 mt in the last season.
India has always been deficient in oilseed and this year's further shortfall led to an increase in imports of these primary products by 128 per cent to $23 million from $10 million and edible oils by 16 per cent to $8.60 billion from $7 billion. Oilseeds production was pegged at 29.47 mt in the current crop year against 29.8 mt in 2011-12 and 32.48 at in 2010-11.
Pulses imports rose 22.75 per cent to $1.73 billion against $1.4 billion. This was even as pulses production was pegged slightly higher at 17.58 mt against 17.09 mt. The Reserve Bank of India has time and again pointed to structural rigidity in this regard. Basically, while production of protein items have been on the rise, the supply is not increasing at the proportional rate.
For the first 10 months of the current financial year, exports declined in eight months. It revived slightly by posting a growth of 0.82 per cent in January 2013 year-on-year. "Except for China, others are not growing at a robust pace," an economist said.
According to the latest world economic update by the International Monetary Fund, emerging and developing economies grew 5.1 per cent in 2012 against 6.3 per cent in 2011. Even developing Asia, where China and India — the two drivers of growth — are included, expanded just 6.6 per cent in 2012 against eight per cent in 2011.
Exports this year would not be able to touch even the last year’s figure of $304 billion, forget the target of $360 billion set by the commerce department.
In 2013-14 and 2014-15, pressure on trade deficit would also come from some $85 billion of power equipment, orders for which have been already placed. "The orders are particularly placed with China," Sahai said, adding the actual delivery would be spread in 2014 and 2015.
The rising trade deficit is a matter of concern for India since it is the largest part of the current account deficit (CAD). High CAD requires large capital inflows and at times of global slowdown capital flows usually dry.
India's CAD had reached an all-time high of 4.2 per cent of GDP in 2011-12. For the first half of the current financial year, it had already touched 4.6 per cent of GDP. Sahai projects it to be at 5.1 per cent for the whole of 2012-13. If that happens, CAD would really become a major policy concern.