Assocham projects India`s balance of trade at USD 262 bn for FY13.

As exports face headwinds from the western economies, particularly in debt-ridden Europe, India`s balance of trade (BoT) is projected between USD 262 billion and USD 280 billion in the fiscal 2012-13, exerting further pressure on the country`s current account deficit (CAD), according to an Assocham study.

In the fiscal 2011-12, the country`s merchandise imports totaled USD 488 billion against exports of USD 303 billion leaving balance of trade (BoT) of USD 185 billion.  Against the backdrop of weak recovery in the US economy and continuing troubles in the European markets, export shipments were up 21% as there was some good performance in the initial months of the 2011-12 fiscal. But, imports shot up by 32% thanks mainly to high crude prices and rising gold and silver imports.  Import on these two counts  itself was a whopping USD 217 billion, accounting for over 44% of the country`s total import bill of USD 489 billion, said The Associated Chambers of Commerce and Industry of India (Assocham).

``Out of the three likely scenario plotted by the Assocham study, the most likely seems to be the one where imports would grow by about 25% in dollar terms and exports increasing by about 15%. This would leave the country with a BoT gap of USD 262 billion,`` said Rajkumar Dhoot, MP and President, Assocham while releasing the findings of the study.

``In such a scenario, exports would grow up to USD 348 billion but import shipments would increase to USD 610 billion. Even assuming the moderate GDP expansion of 7%, the crude oil imports would remain the biggest import item, as the economic activity would be required to be fueled by the conventional sources of energy,`` said Dhoot.

Despite the Budget proposal of doubling the customs duty to 4% on gold, imports under this head would continue to exert pressure on the country`s bill.  The country`s social habit in terms of gold being one of the biggest purchases during the marriages is not going to change over night, even though the middle class families find it hard to manage.

The problem in terms of rising imports in dollar terms is expected to be worsened by the continuing pressure on rupee, which has lost well over 15% in value since September. Rupee would remain weak, if efforts on war-footing are not taken to make India an attractive investment destination both for the foreign direct investment (FDI) as also for the portfolio investment through the foreign institutional investors (FII) route, highlighted the Assocham study.

Unfortunately, the events beginning to unveil after the Budget seemed to be pulling the country in the reverse direction. The FIIs have pulled out Rs 7.77 billion in April after staying bullish on India for the first few months of 2012. They were disappointed by several events and policy issues, including the General Anti-Avoidance Rules (GAAR) and the retro-active tax proposals. Thankfully, as suggested by Assocham, Finance Minister Pranab Mukherjee has deferred the GAAR implementation by a year.

On the other hand, while the foreign direct investment (FDI) figures might look attractive in terms of growth, the base is so low that they do not mean much. In all, India attracted FDI of about USD 28.5 billion during April-February period of 2011-12 fiscal. The year-end figure could be in the range of USD 30 billion.

``Here too, potential areas which can catapult global investor confidence in India have remained on the backburner due to lack of political consensus,`` said the Assocham chief.

That leaves the country look up to the services exports for retrieving the Balance of Payment (BoP) situation. The services exports largely generate business fromthe US economy , which is not showing definite signs of pick-up. Moreover, there are issues like protectionism and more and more road blocks being created in the export of Indian IT services to the US - be it visa fee hike or difficulties being faced by the Indian firms in getting short-term visas for their staff.

Assocham president has suggested the government to go for all out domestic policy reforms.  Whether it is Goods and Services Tax (GST), or Direct Tax Code (DTC) or banking sector reforms, not much time can be lost. These measures will boost confidence both in the domestic market as also for exporters as their transactions costs would come down making them competitive.

> Speed up Free Trade Agreement with the European Union. Exports of merchandise will get a boost in terms of getting improved  market access in products like textiles, engineering, gems and jewellery.

> Give concessional credit to exporters

> Improve the drawback rates so that taxes on raw material are not exported

> Improve trade and political relations with the neighbouring countries like Pakistan and Bangladesh. India can get increased market access at a lesser cost in terms of proximity of destinations.

 > Support industry initiatives for aggressive marketing and organizing of trade and industrial exhibitions abroad.

Source : myiris.com