Though India’s current account deficit (CAD) is expected to correct substantially with a sharp correction in gold prices—after rising to 140 tonnes in April and 160 tonnes in May, gold imports in June are estimated at 50 million tonnes with consumers wising up to gold’s negative returns—and crude prices continuing to remain soft, India’s real problem is the complete collapse in overall exports. In overall terms, for FY13, while gold imports continue to be very large at $56 billion, they fell around $6 billion as compared to FY12—this is also roughly the same as the fall in overall exports, from $306 billion in FY12 to $300 billion in FY13. Indeed, in some quarters such as the April-June FY13 one, gold imports rose just $1.3 billion while overall exports fell nearly $7 billion. In other words, while gold imports need to be curbed, the real issue is stimulating exports. Nor is the problem related to just slow global trade growth since China’s share of global exports has risen quite dramatically while India’s share has fallen. Look at it in terms of the share of manufactures in total exports, and you find that in just the last 4 years, from FY09 to FY13, the share of engineering exports in India’s total exports basket has fallen from 21.9% to 18.9%; textiles has fallen from 10.4% to 8.7%. In other words, the competitiveness of India’s exports base has been badly eroded. That this should happen while the rupee has depreciated by 70% against the Chinese renminbi since the beginning of 2007 makes the erosion even more worrying—in the last year, while the rupee depreciated 3.7% against the dollar, the renminbi appreciated by a similar amount.
Equally problematic is the sharp rise in imports of coal and petroleum products—coal imports add up to around 1% of GDP and petroleum imports add up to around 8.5% (after you remove exports, net imports are still around 5% of GDP). Whether you agree with what petroleum minister Veerappa Moily had to say about the oil import lobby, India has to find a way to get more domestic production going given how the energy shortage that is met from imports has risen from 33% in 2008 to around 40% today and is projected to rise to 47% in another 5 years. At $31 billion, India’s imports of electronic goods, similarly, poses the question as to why local production is not taking place given the size of the domestic market—the second-largest market for wireless telecom subscribers is in India. None of these offer short-terms solutions, but if the CAD is to remain in control—particularly since the mineral-related boost to exports looks like history given the Chinese slowing—addressing them is critical.