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Home Banking & Finance

Non-oil pressure on account deficit

Fiinews by Fiinews
August 27, 2018
in Banking & Finance, Economy, Imports
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Monitor imports closely, says ASSOCHAM

 

Exim Bank

 

It is not only crude oil which is exerting pressure on India’s import bill and consequently on the current account deficit and the rupee, but a host of other non-oil items like coal, noted an ASSOCHAM analysis.

Electronics, chemicals and leather and leather products, fruits and vegetables are also witnessing rising imports and becoming a drag on the country’s overall balance of trade situation.

“While there is no alternative to crude oil and gold imports, domestic supply constraints have led to an increase in imports by well over the double digit in as many as 22 (other than crude and gold) out of 30 top import items,” the chamber noted from the latest July data.

“It is given that crude oil and gold and, to an extent, essential chemicals and select electronic items do not have any domestic alternative and therefore, their imports are unavoidable.

“But close to 60% rise in imports of fruits and vegetables from US$98.67 million in July 2017 to US$157.47 million in July, 2018 can surely be reduced, if not eliminated by improving domestic productivity and quality,” it pointed out.

Same is true about coal, coke and briquettes which have witnessed a runaway upward movement in imports for the month under review, from US$1.54 billion to US$2.05 billion.

Likewise, imports of leather and leather products saw a rise of over 22% from US$79.66 million to US$97.54 million, while electrical and non-electrical machinery witnessed a 30.59% jump in imports from US$2.4 billion to US$3.15 billion.

“This also shows that there is a good amount of demand for all these products which is leading to a sharp rise in imports as domestic supply constraints have surfaced,” the ASSOCHAM analysis pointed out.

While it is true that a huge amount of import pressure is on account of crude oil which has seen a rise of 57% in the import bill in July 2018 to US$12.34 billion from US$7.84 billion in the comparable month of the previous year, a fair bit of pressure is also seen with regard to import of iron and steel (up 20%) and non-ferrous metals (up 29%).

No wonder the trade balance in July 2018 worsened to US$18 billion from US$11.45 billion a year ago.

“Surely, a well-coordinated effort is needed, which can reduce India’s import bill, while continuous measures are required to ramp up exports. Removing domestic supply constraints should not be construed as import substitution in the traditional sense of the word. These imports can create both cause and effect on the sliding rupee,” it said.

Rupee is trading above the 70 mark to a US dollar, while the country’s current account deficit is getting close to two per cent of the GDP, causing concern over the macro situation.

“A close eye is needed on the imports situation, especially of non-oil items and domestic production needs to be ramped up,” said ASSOCHAM. fiinews.com

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