|Monday, 12 March 2012 00:00|
Despite all the controversy over the genuineness of the numbers that has been debated all through the year, an overall export growth of over 20% for the first 11 months is laudable, more so since it comes at a time when the world economy continues to go through one crisis after another. We could just about be touching the magic number of $300 billion this year with a bit of luck. Engineering exports with a share of 33% have risen sharply, which is good news indicating that to a large extent our export markets have been stable. The other big tickets are gems and jewellery and petro products with a share of 55%. But can this be sustained? The answer is evidently, one doesn’t know, because the global economy looks more on a slippery ground with the euro region probably going into a recession and the US just about holding on to a 2% growth and China also faltering. Will the markets be open to our products from now on? With the pull factor being watered down, the government has to think of something unusual to prop up exports.
The other issue relates to imports that have been growing at a higher rate of nearly 30%, which is disconcerting because of two reasons. The first is that the deficit has increased to close to $170 billion for the first 11 months and we could end with a number towards $190 billion. The second is that of the total imports of around $435 billion so far, $200 billion comes from oil, gold and coal, all three of which have the potential to spike further. The Iranian crisis can put our oil bill in jeopardy while the continual decline in coal production is driving us further to imports. Gold has been supremely popular as an asset class last year and has been seen as a safe investment. This being so, there will be relentless pressure on our trade deficit in the coming year.
Therefore, while we are hoping that the economy next year will be better, the external account may not be that cheerful. The current account deficit will surely be pressurised and we will have to depend a lot on our foreign investment flows to steady our balance of payments. The rupee hence will continue to be volatile notwithstanding what happens to the dollar and euro. It will once again be the case of the capital account supporting the current account!