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

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Whistling in the Dark

DRAWING attention to the economy's apparently impressive performance on the external front, government spokesmen have sought to emphasise that the deficit on current account, which was over 3 per cent of GDP in 1990- 91, is likely to dip below 0.5 per cent in 1994-95. Commerce minister P Chidambaram, announcing the revised export- import policy for the five-year period 1992-97, has projected the trade deficit in 1995-96 at around $2 billion, with exports touching $29 to 30 billion and imports $31 to 32 billion. Quoting assessments by the Reserve Bank and the finance ministry, Chidambaram argued that the country could easily absorb a trade gap of that order, Confident pronouncements such as these fail, however, to put the external sector situation in the right perspective. They focus exclusively on short-term achievements without reference to fundamental issues which are germane to any effective use of international trade to raise the country' s economic growth rate and strengthen the domestic economy. It seems to be assumed that pursuit of globalisation and rapid integration of the Indian economy with world markets will solve most problems. In all official assessments of the prospects on the external front, the focus is invariably on exports without much attention being paid to the changes that are taking place in the economy' s import propensities. Data for April-February 1994-95 show that exports grew by 17.3 per cent from $19,825 million to $23,248 million even as non-POL imports shot up by 31.7 per cent from $ 15,150 million to $ 19,954 million and total imports by 23.3 per cent from $20,355 million to $25,063 million. While the overall trade deficit may well be contained at $2 to 2.5 billion in 1994-95, its projection at about the same level in 1995-96 as well is clearly optimistic, to say the least. Assuming 15 per cent growth in exports and 25 per cent growth in imports, as seems justified on the basis of the trends in world trade and in the domestic economy, the trade deficit in 1995-96 may turn out instead to be in the region of $6 billion. So what is claimed to be a BOP strategy aimed at a low current account deficit may not be sustainable for long. There are many macro-economic imponderables, including the slow growth of domestic saving, the rapidly rising revenue deficit and die persistence of double-digit inflation which must be expected to contribute to a widening of the deficit on the external current account. For the trade deficit to be covered by net inflow of invisibles, the size of private transfers will have to rise well above the 1993-94 and 1994-95 level of $4 billion. Besides, on the invisibles side, despite the RBI's substantial accumulation of income-earning reserves, the net outgo of investment income touched $4 billion in 1993-94 and will probably turn out to be higher in 1995-96, with the outflow on this account mounting rapidly in later years.

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