ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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BOP Warning Signals

BOP Warning Signals THAT the external sector of the country's economy is getting into a vicious circle of growing foreign exchange requirements, large borrowings to finance them, consequential increase in servicing commitments and mounting pressures on dwindling exchange reserves is evident from the data on balance of payments for 1987-88 presented in the December 1989 issue of the Reserve Bank of India Bulletin. The impression has been sought to be encouraged recently that the merchandise deficit has been on the decline. But such is not the case. It is now well known that the foreign trade statistics put out by the Directorate General of Commercial Intelligence and Statistics (DGCI and S; Significantly underestimate the size of the trade deficit because they grossly understate the value of imports. The Reserve Bank of India's Annual Report for 1988-89 had pointed this out and it is now confirmed by the balance of payments data for 1987-88. The DGCT and S statistics had placed the merchandise deficit at Rs 6,658 crore for 1987-88 (as per the government's Economic Survey for 1989-90) but the corresponding trade deficit shown in the BOP study is Rs 9,296 crore. In the previous two years, 1986-87 and 1985-86, the deficits according to the BOP figures were Rs 9,354 crore and Rs 9,586 crore, but the trade statistics had placed the deficits at Rs 7,644 crore and Rs 8,763 crore in these two years. In 1984-85 when the current phase of rapid liberalisation and export- orientation began, the trade deficit was Rs 6,721 crore as per BOP data and Rs 5,390 crore as per the trade statistics. Merchandise data suggest that the trade deficit rose from Rs 6,624 crore in 1987-88 to Rs 7,412 crore in 1988-89. In the first four years of the Seventh Plan (1985-86 to 1988-89) the trade deficit averaged SDR 6.5 billion against SDR 5.7 billion in the Sixth Plan (1980-81 to 1984-85). In other words, while in individual years the trade deficit may have shown a fractional decline, it is currently ruling about 35 to 40 per cent above the level prevailing in 1984-85

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