Trade deficit declines, export growth recovers: Economic Survey

New Delhi, Jan 31 (IANS) India’s trade deficit declined to $76.5 billion between April 2016 and December 2016 compared with $100.1 billion in the corresponding period of 2015-16, the 2016-17 Economic Survey said on Tuesday.

Forecasting growth to return to trend in 2017-18, following a temporary decline in 2016-17, the survey said the Current Account Deficit (CAD) was limited to 0.3 per cent of the GDP from April to September 2016 while foreign exchange reserves stood at $360 billion at end-December 2016.

“During the current financial year (April-December), the trend of negative growth was reversed somewhat with export growth at 0.7 per cent at $198.8 billion. The imports declined by 7.4 per cent during the period to $275.4 billion,” said the survey that was tabled in parliament on Tuesday by Finance Minister Arun Jaitley.

In a first, Jaitley has also authored a section of the Survey.

The Survey has greatly benefitted from the comments and insights of Jaitley, who also authors a section, possibly the first such contribution by a Finance Minister, the acknowledgment section stated.

The survey said that India’s exports appear to be recovering, based on an uptick in global economic activity and this is expected to continue in the aftermath of the US elections and expectations of a fiscal stimulus.

“Given the high elasticity of Indian real export growth to global GDP, exports could contribute to higher growth next year, by as much as 1 percentage point.

“Despite moderation in India’s exports, India’s external sector position has been comfortable, with the current account deficit progressively contracting,” said the survey.

Lower CAD of $26.8 billion (1.3 per cent of GDP) in 2014-15 and $22.2 billion (1.1 per cent) in 2015-16 has been attributed to lower trade deficit.

According to the survey, India’s Balance of Payments position remained comfortable in H1 (first half of) 2016-17.

Robust inflows of foreign direct investment and net positive inflow of foreign portfolio investment were sufficient to finance CAD leading to an accretion in foreign exchange reserves by $15.5 billion in H1 of 2016-17.

“Surging net FDI inflows, which grew from 1.7 per cent of GDP in 2015-16 to 3.2 per cent of GDP in the second quarter of 2016-2017, helped the balance-of-payments.”

Foreign exchange reserves are at comfortable levels, having have risen from around $350 billion at end-January 2016 to $360 billion at end-December 2016 and are well above standard norms for reserve adequacy.

India’s external debt stock stood at $484.3 billion at September-end, recording a decline of $0.8 billion over the level in March 2016, mainly due to a reduction in commercial borrowings and short term external debt, said the survey.

Commenting on India’s Free Trade Agreements (FTAs), the Economic Survey said India will need to carefully weigh the benefits and costs of negotiating new FTAs, such as, with the European Union (EU) and Britain.

“On the need to promote labor-intensive exports, India could more proactively seek to negotiate free trade agreements with the UK and Europe. The potential gains for export and employment growth are substantial.”

“But in this calculus, the impact on export-and job-creating sectors such as apparels and maybe also leather products compared to other sectors should receive high priority. Based on recent inhouse analysis in 2016, it is estimated that an FTA with the EU and UK can lead to 108,029, 23,156, and 14,347 additional direct jobs per annum in the apparel, leather and footwear sectors respectively,” the survey stated.

Thus, more FTAs, GST-induced tax rationalization, and labour law reform would add considerably to the job creation potential of the clothing and footwear sectors.

India’s tourism sector witnessed a growth of 4.5 per cent in terms of foreign tourist arrivals (FTAs) with 8.2 million arrivals in 2015. In 2016 (January to December), FTAs were 8.9 million with growth of 10.7 per cent.