| Date: |
16-10-2014 |
| Subject: |
External deficits are manifestations of internal deficits on policy and sense |
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India's trade deficit in September soared to an 18-month high, on sluggish export growth and a surge in the import of oil, gold and minerals. While exports grew less than 3%, reflecting a slowdown in major overseas markets, including Europe, imports grew about 26%: a near-10% rise in oil, a 450% increase in gold and a 106% rise in metallic and other ores over September last year. This is a worrying trend. If India were importing increasing amounts of capital goods or things that would go into investment, the rise in imports could have been perceived to be a harbinger of higher growth.
But the composition of imports is not helpful. Because of regulatory bottlenecks that the present government has not been able to sort out and other reasons, power projects remain stranded for want of coal, environmental and other clearances. Meanwhile, because of failure of the monsoon this year, farmers have been pumping water using diesel pump sets. Add to that the chronic shortage of grid power and the use of oil-fired generators in cities and towns as well as a slowdown in the production of domestic oil and gas: how can oil imports slow down?
Mining has been hit hard by bans and regulatory failure, most visible in coal and iron ore, and this pushes up imports. Gold imports are probably soaring because jewellers see an opportunity to stock up on the metal after its global price has crashed and the rupee is relatively stable. The trade deficit has widened but still well within the limits of prudence. However, unless the government takes steps to solve the structural issues that plague various sectors in India, the deficit will go out of control and destabilise the rupee as well as the entire economy. External deficits are, after all, only manifestations of internal deficits on policy and sense.
Source : economictimes.indiatimes.com
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