Trade imbalances on the verge of stability under Modi’s sway

 

 

Pune, December 28: International trade facilitation being a priority of the government for cutting down the transition cost and time and thereby rendering Indian exports more competitive. India exports approximately 7500 commodities to about 192 countries and imports 6000 commodities from around 140 countries affecting the country’s balance of payment ideals.

 

While current account represents a country’s foreign transactions and current account deficit usually represents negative net sales abroad. It is a measurement of a country’s trade where the value of the goods and services it imports exceeds the total of the same exported by the nation during the equivalent period. Although the current account includes net income, such as interest and dividends and foreign aid making only a small percentage of the total current account, it is a component of a country’s balance of payments.

 

“India’s industry exports reached a level of US$ 275.85 billion during April-March 2017-18 registering a positive growth of 5.17 per cent as compared to a negative growth of 15.48 per cent during the previous year. Despite the setback faced by India’s export sector due to global slowdown, merchandise exports recorded a Compound Annual Growth Rate (CAGR) of 6.01 per cent from April-March 2007-08 to April-March 2016-17”, asserted the report by Ministry of commerce.

 

 

 

Also as per the data released by RBI in September this year, the current account deficit marked in the age of Congress rule in year 2013-14 was 45%, it being 29.2% more than the current year which is 15.8%. In year 2003-04, when Vajpayee was in the regulation, the quantum of exports surprisingly exceeded the imports resulting in the surplus measuring 10.5%. India earlier and even today faces negative trade balance, year 2003-04 being an exception.

 

 

However, the Department of Commerce has undertaken a number of export promotion measures and schemes to address the short term and long term issues faced by the trade and industry related to external sector.

 

 

 

While a current account deficit can imply that a country is spending beyond its means, having a deficit as such is not inherently disadvantageous. If a country uses external debt to finance investments that have higher returns than the interest rate on the debt, it can remain solvent while running a current account deficit. If a country is unlikely to cover current debt levels with future revenue streams, however, it may become insolvent.

 

India can majorly reduce its current account deficit by increasing the value of its exports relative to the value of imports. It can place restrictions on imports, such as tariffs or it can emphasize policies that promote export, such as import substitution, industrialization or policies that improve domestic companies' global competitiveness. The country can also use monetary policy to improve the domestic currency’s valuation relative to other currencies through devaluation, which reduces the country’s export costs.

 

 

(Info-graphics credits : The True Picture)