Growth-oriented Budget can worsen trade deficit

The Budget intends to stimulate growth by boosting capital expenditure and driving domestic consumption in the given context of tepid export growth prospects. The hope is that increased domestic demand will spur higher utilisation of capacity by private enterprises and lead them to investments in fresh capacities. In theory, this strategy is sound but increased imports can spoil the plans.

The Indian economy is a ‘bright star’ growing at about 7 per cent, the fastest rate among major economies. Our imports are likely to grow faster than exports widening the trade deficit. The Economic Survey recognises this possibility and says