New Delhi: In a bid to control India’s trade and current account deficits, the commerce ministry on Wednesday released a strategy paper to double merchandise exports to $450 billion (Rs20.34 trillion) by 2013-14 and keep trade deficit below 10% of the gross domestic product (GDP).
The ministry now expects exports to touch $225 billion in the year ending 31 March, exceeding its earlier target of $200 billion.
“We hope to close the gap and bring the balance of trade below 10% to make it manageable,” commerce minister Anand Sharma said while releasing the report.
In 2009-10, India’s trade deficit and current account deficit stood at 8.5% and 2.8%, respectively.
In the report, the ministry said if exports and imports grow at 22% and 25%, respectively, as was the case before the 2008-09 economic downturn, the country will still end up with a trade deficit of $225.5 billion, or 12% of GDP.
“The large growth in the size of the trade deficit on merchandise account will result in a significant expansion of the current account deficit, in turn, leading to a reliance on foreign capital inflows to finance the deficit,” the report said.
It added that a large widening of the trade deficit can potentially result in payment difficulties. “Such a situation is simply unacceptable because it may jeopardize the entire growth process,” it said.
To increase exports to $450 billion, the ministry has targeted a compounded average export growth rate of 26% per annum.
“Even with this level of exports, the trade deficit is still likely to be over 9% of GDP, around the same as at present, which may be regarded as just about manageable,” the strategy paper said.
The current account deficit, which touched 3.65% of GDP during the first half of the current fiscal, is expected to come down to 2.8%, according to the Prime Minister’s economic advisory council’s review released on Tuesday.
To achieve the doubling of the export target, the ministry proposes to aggressively promote the export of high-value products that have a strong domestic manufacturing base, such as engineering goods, which account for more than 20% of total exports at present.
Other key sectors that will receive focus under the new strategy include chemicals, pharmaceuticals and light manufacturing sectors such as leather products and textiles.
The ministry wants exporters to move up in the value chain in the US and European markets, while focusing on new markets in Asia, Africa and Latin America.
The report also calls for reducing the dependence on imports by incentivizing domestic production in agriculture, fertilizer and petroleum products, which will help manage the trade deficit better.
It points out that infrastructure bottlenecks remain the single most important constraint for achieving accelerated export growth. “Efficient and timely movement of exim (export-import) cargo would be fundamental to realizing the export target,” it said.
Ajai Sahai, director general of the Federation of Indian Export Organisations, said the target is easily achievable. “Looking at the increased economic engagement of India with the rest of the world, our exports may even touch $500 billion by 2014,” he said.
India has concluded 10 free-trade agreements (FTAs) and five limited scope preferential trade agreements, and is in the process of negotiating 16 more such pacts. At least seven more proposals for FTAs are under consideration. “When completed, such agreements would cover over 100 countries spread across five continents,” the report said.
The ministry has sought comments from stakeholders by 23 March so that it can finalize the report by 31 March this year.