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Ballooning trade deficit unsustainable: Govt

Ballooning trade deficit unsustainable: Govt
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First Published: Wed, Feb 23 2011. 04 58 PM IST
Updated: Wed, Feb 23 2011. 04 58 PM IST
New Delhi: The Manmohan Singh government on Wednesday flagged “serious concern” over a trade deficit that could jump nearly 2.5 times to $278.5 billion in three years and may cause an unsustainable current account deficit (CAD).
Asia’s third-largest economy could see its trade deficit widen to 12.8% of GDP by 2014 from 7.2% in this fiscal year on current trends, leading to a higher reliance on foreign capital inflows to plug the current account gap, a trade ministry document showed.
“The projected BoT (balance of trade) deficit on merchandise account of 13 % is clearly cause for serious concern because it can lead to an unsustainable CAD ,” the document published on Wednesday said.
India is on track to exceed a 15% export growth target in this financial year ending March 2011 as the country pulls away from the global economic slowdown, which sapped demand from many traditional export destinations in the United States and Europe.
While IT and service exports have played a huge role in India’s economic boom, merchandise exports have lagged behind the potential of the world’s second-fastest growing major economy, which is seen returning to pre-crisis growth rate of 9 % soon.
“Services earnings will most certainly grow over the next few years. However, it is unlikely that even their growth can sustain a ballooning of the BoT deficit to the size of 13% of GDP.”
“A large widening of the trade deficit can potentially result in payments difficulties,” the document said.
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First Published: Wed, Feb 23 2011. 04 58 PM IST
More Topics: India | Trade | Deficit | IT Exports | Service Exports |