Shrinking trade deficit

By S. Swaminathan

A buoyant growth in exports by 20 per cent in U.S. dollar terms, during 2000-01, represents the bright side of Indian economic performance, coming after a 11.6 per cent growth in the previous year. Even granting that the overall exports represent not more than a 0.7 per cent share in global exports and that too with a skewed geographical spread and limited value addition, it must be conceded that the policy initiatives of the NDA Government have made a positive contribution to the export effort. The argument that the depreciation of the rupee (by about 6.5 per cent during the year) has been a decisive factor in the export surge is difficult to go along with to the extent that the depreciation of other Southeast Asian currencies has been greater than that of the rupee.

The Union Minister for Commerce and Industry, Mr. Murasoli Maran, has struck the right note recording gratification over the export growth but adding the imperative that the country should soon cross the one per cent threshold in global exports. Thus a strategy for the medium-term for leveraging the vast untapped export potential of the country, in agriculture and in industry, would become the critical factor if exports are to reach the $75 billion level by 2004.The disaggregated commodity composition of exports, available for April-December 2000, reveals that agricultural and allied products constituted hardly 13 per cent of the total exports with a negative growth rate of around 1.5 per cent. Although one swallow does not make a summer, the Union Cabinet's decisions recently in favour of freeing exports of sugar and rice raise hopes that the policymakers would realise that in the post-QR era, restrictions on exports of agricultural produce would become untenable and that obsessive concerns over food security in the face of glut of supplies, would only translate into mismanagement of the economy.

In the manufacturing sector which accounts for around 78 per cent of exports, impressive export performances during last year have come from leather and related manufactures, basic chemicals, engineering goods, electronic products and readymade garments. Far from complacency creeping through the official corridors, strategies need to be worked out in order to enthuse these sectors more. The bugbear continues to be ``transaction costs.'' The softening of export credit cost is a good augury. But infirmities in logistics with delays in infrastructure development need to be tackled with greater urgency.

Flip side is import stagnation

The traditional notion that export growth going along with import containment speaks for a dynamic economy is fast becoming anachronistic in an increasingly inter-dependent global economy. How vigorous exports of manufactured goods from India would be in global markets with greater access for Indian manufacturers to parts, components and accessories from overseas, is anybody's guess. If China's example is to be reckoned with, the slide in imports into India during 2000-01 by 14.7 per cent (excluding oil imports) may not exactly be an indication of growing economic strength. A vibrant economy is not one which thrives on import substitution and indiscriminate indigenisation but one which optimises the synergy between domestic production and imports on the one hand and exports, on the other.

Imports, during 2000-01, aggregated to $49.84 billions - an increase of a mere $140 millions - compared to the previous year. Of the total import bill, oil accounted for $15.65 billion - a 62.3 per cent increase over the previous year. As for non-oil imports, the value was only $34.18 billions as against $ 40.06 billions. The commodity composition of imports during April- December 2000, reveals not only a 40 per cent decline in ``food and related items'' including milk and cream and edible oils (contrary to all the hue and cry raised by a new-found coalition of politicians pretending to be the champions of Indian agriculture) but also a marginal decline in import of ``export- related items'' including pearls, precious and semi-precious stones and chemicals.

The only redeeming feature in the situation seems to be the 32 per cent increase in the imports of ``raw materials and intermediates.'' How much of this increase was driven by volume and how much by higher import duties and a depreciated rupee is not yet known.

Smaller trade deficit

It now appears, on the basis of the date released by the Directorate General of Commercial Intelligence and Statistics (DGCI&S), that the trade deficit during 2000-01 has dramatically come down $5.73 billions from $12.9 billions in 1999-2000. That the final tally, after the RBI compiles the data on a payment basis, is bound to be larger, needs to be kept in mind. Even then (after payments for government imports including overseas defence purchases are accounted for), the trade deficit would be well within manageable limits.

This is not in doubt but what ought to cause concern for policymakers is that a constrained import structure can itself prove to be a barrier to a higher rate of economic growth. Paradoxically enough, a shrinking trade deficit, instead of signalling a robust state of health for the economy, could indicate a weakening of the growth impulse in its relatively modern segments, and particularly in the manufacturing sector. More than celebration, the situation seems to call for objective introspection!

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