Imports have also been growing rapidly. In dollar terms, they increased by almost 37 per cent, from $17.8 billion in April 2007 to $24.3 billion in April 2008. Oil imports stood at over $8 billion in April this year, 46 per cent higher than the $5.5 billion they accounted for in April 2007. However, even non-oil imports grew by about 32 per cent over April 2007, a re-assuring sign that domestic demand remains relatively buoyant in the first month of the fiscal year. The Index of Industrial Production numbers, due out later this week, will provide further evidence on the state of the economy.
Speaking of trade in petroleum products, although the commodity-wise disaggregation is published with a lag, it has been evident for some time now that refined petroleum products are amongst the fastest growing exports. Because private sector refineries do not get the benefit of the subsidy in the form of oil bonds, it makes no sense for them to sell their products domestically. They, therefore, export their entire output, realising the full international price, while the government-controlled oil marketing companies sink ever deeper into a financial hole. As a result of this distortion, the Indian consumer receives no benefit from having some of the world's most efficient refining capacities in the country.
The export and import numbers being what they are, the trade deficit has widened considerably, to almost $10 billion, compared to about $6.8 billion in April 2007. Extrapolated for the year, it could begin to touch 10 per cent of GDP. This is, of course, covered to a large extent by a surplus on the invisibles account, comprising service exports and remittances, and the rest is more than made up for by capital inflows. However, capital flows are inherently more volatile than current account transactions; the rupee depreciation in recent weeks suggests that capital inflows, for the time being at least, are at a low ebb and may have even reversed direction as foreign institutional investors pull money out of the Indian stock market. While India is unquestionably a long way away from balance of payments difficulties, it is prudent to begin thinking about what needs to be done to avert them as well as what can be done if they do precipitate. Inducing energy conservation by raising prices should certainly be at or close to the top of the list.
