Straight from the Specialists
(The views expressed in this column are the author’s own and do not represent those of Reuters)
It always takes time for the government to wake up to any emerging problem; and when it does, the problem is already magnified. That is what’s going to happen to the balance of payments.
The trouble is really with external trade. We are importing far too much and exporting far too little thereby building up a huge trade deficit. Of course, there are reasons, some beyond control. We cannot export enough because the importing countries are in and out of recession, burdened also with high unemployment. That is so of the U.S., Europe and Japan which together account for more than a third of our exports. Last February, exports increased a mere 4 percent in spite of the depreciation of rupee against dollar by 13 percent.
Our imports increased much more than exports though the rate of growth of industrial production actually slumped. There was a 41 pct increase in imports of oil mainly because of the jump in oil prices following political disturbances in the Middle East. Had these prices been passed on, consumer demand would have shrunk and imports of oil checked. Instead, the government allowed subsidies to rise and create larger demand and consequently larger imports of oil. We produce only a quarter of our oil requirements. But we have enough coal and yet we import coal also because Coal India’s production has been stagnant.