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How to reverse India's trade deficit

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April 24, 2017 14:51 IST
A more effective promotion of domestic manufacturing and mining could
significantly reduce the trade deficit in key sectors, says T N Ninan.

Illustration: Dominic Xavier/Rediff.com.

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So what ails Indias exports, which have been stagnant these last five years even as the deficit
in merchandise trade has remained large, despite the fall in oil prices? Decks cleared for
export of Indian
mangoes to
India has a surplus in the trade in agricultural items as well as in services trade (mostly Australia
software). It also has a net surplus when it comes to financial transfers, like remittances from

Among the deficit areas, as is well known, the biggest is in energy (oil, gas and coal), which Vijender Singh
won't participate
accounted in 2015-16 for well over half the total deficit in goods trade of $118 billion. The rest in Amir Khan's
of the deficit was almost entirely explained by the deficit in trade in manufactured items.

This broad category can be defined and grouped in various ways. As it happens, India has a
trade surplus in a knowledge-intensive area like drugs and pharmaceuticals, and also in its Indian Army
areas of traditional strength, such as in the broad textiles segment and in leather. reached a new low
in Kashmir: NYT
on man tied to
But if you take just core manufacturing (engineering, chemicals and electronics), exports in jeep
2015-16 totalled only $78 billion, whereas the imports of these items were two-thirds bigger at
$130 billion.
This inspirational
These numbers need to be broken down further. Because, interestingly, the country is not 100-year old was
just short of Bolt's
badly off when it comes to trade in engineering goods -- exports totalled $60 billion, while record mark!
imports were smaller at $53 billion.

It is a different story when it comes to chemicals -- imports at $36 billion were three times Afghan defence
exports of $12 billion. The imbalance was greatest in electronics -- imports of $40 billion minister, army
chief resign post
swamped exports of $6 billion. Taliban attack

Two other problem areas are mining, where the import of coal and non-ferrous metals totalled
$25 billion, and fertiliser ($8 billion).
'Arsenal want to
It goes without saying that every country has areas of strength and weakness when it comes to win FA Cup for
trade, and no country can expect to do equally well in everything.

http://www.rediff.com/business/column/how-to-reverse-indias-trade-deficit/20170424.htm 1/3
24/04/2017 How to reverse India's trade deficit - Rediff.com Business

Vijay Kelkar argued more than three decades ago that, for whatever reason, India did
relatively well in batch-production (like engineering goods) and poorly when it came to
continuous-process industries like chemicals.

Though companies like Reliance have shown they can do perfectly well when it comes to
exporting refined petroleum products, and some speciality chemical companies have notched
Moneywiz Live!
up export successes, Kelkars broad finding has stood the test of time.

That leaves the electronics industry, where the lack of exports is striking and the trade BSE 29,655.84 +290.54 9:00 15:59

imbalance the most glaring. Surely, there is scope here for leveraging the attractions of a large NSE 9,217.95 +98.55 9:00 15:59

domestic market to encourage suppliers overseas to set up local manufacture. Enter Company or Mutual Fund Get Quote
Top Gainer - Indian Bank +9.29 - View All
Chinese companies have started assembling mobile phones in India, and Apple might do so Top Loser - LIC Housing Fi -44.94 - View All
soon. If this progresses to the domestic production of components and then sub-assemblies, it
would set the stage for becoming an export base, as has happened with small cars.

Beyond these, the issue to examine is the role of government policy. It is well understood that
the exports of yarn, textiles and garments could have been very much more than the $32
billion achieved in 2015-16.

One of the factors that have stood in the way is labour policy, which is now being addressed in

Similarly, when it comes to the growing reliance on imported fertiliser, one of the manifest
causes is government policy; there has been virtually no investment in the sector for a decade
or more.

In the energy sector, when Cairn claims that it can account for half the countrys production of
oil, or when coal imports are growing, the question has to be asked whether preference for the
public sector is standing in the way of increasing domestic output.

As for the large imports of non-ferrous metals, the issue is that conflicts over environmental
issues have not been resolved satisfactorily; the consequence is that investment in the mining
sector has suffered.

The short point is that more effective promotion of domestic manufacturing and mining could
significantly reduce the trade deficit in key sectors.

T N Ninan


Related News: India, Kelkar, Dominic, Reliance, Cairn

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