Balance of Payment Crisis Can Be the Next Big Trouble for India’s Economy!

Now, balance of payment crisis can further instigate India’s economic doldrums. The incumbent government should pull up the socks fast to escape further trouble in its economy

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Balance of Payment Crisis Can Be the Next Big Trouble for India’s Economy!
Balance of Payment Crisis Can Be the Next Big Trouble for India’s Economy!
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India’s economy is silently going towards danger zone! In January, the trade deficit of India peaked to 56 month high driven mainly by the costly imports of petroleum, chemicals, silver, pearls and machine tools. It is not that exports are not expanding, but the import bills are far outpacing the export growth.

The main drivers of Indian imports are petroleum and crude oil that has been raised by 42.64 percent from last year to $11.65 billion, according to the government data.

Rise in exports have been paltry 9 percent at $24.3 billion compared to a massive 26 percent boost in imports at $40.6 billion. The Trade gap, thus, created have been $16.3 billion, the highest since May 2013

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Apart from the crude and petroleum, the other principal contributors to the bloating imports are pearls and precious and semi-precious stones that has expanded 55.71 percent to $2.4 billion. The imports of gold, however, are being curtailed by 22 percent to $1.59 billion last month.

Ajay Sahai, director-general, Federation of Indian Export Organisations (FIEO) said, “The trade deficit is alarming. At this rate, trade deficit will touch $150 billion this year.”

The trade balance has been $103.7 billion in the period starting from last April to January. Sahai further added, “Imports of finished goods are being encouraged because the incidence of tax borne earlier is no longer there. This is a cause of worry.”

The major boost in imports came from just five sectors: machinery, petroleum, precious metals, chemicals, and coals.

Aditi Nayar, principal economist at ICRA said, “With the merchandise trade deficit for January 2018 being sharply higher than expected, we have revised our forecast for the FY2018 current account deficit to $47-50 billion or nearly 2% of GDP, from the earlier expectation of $42-44 billion.”

GST has been a wedge in the growth of export sector leading to slowdown of labour-intensive exports such as, handicrafts, carpets, garments, and man-made textiles. The fact that with the introduction of GST, the tax refunds are getting blocked has been the cause of liquidity crunch.

The decrease in exports will further deteriorate India’s balance of payment! The policy errors perpetrated by the incumbent have already slowed down India’s GDP growth by miles along with lack of employment generation. Now, balance of payment crisis can further instigate India’s economic doldrums. The incumbent government should pull up the socks fast to escape further trouble in its economy.