About 50 per cent of the country’s imports are branded in the “sensitive” category by the union commerce ministry. Import of these items, comprising fuel, fertilizer, food and defence items among a few others, account for around 50 per cent of the total import. In 2009-10, India’s “sensitive” imports grew by 40 per cent. India’s high GDP growth has a lot to do with the ‘import of high value added products and jobs’. Adversely, India’s export trade has long been languishing due to the short-term focus of the country’s foreign trade policy. The questions often asked are: (a) how is the country going to pay for these imports; and can India sustain such a spend-thrift import policy?

India is fast emerging as a ‘buy’ economy. It contributes substantially to the job creation in countries and regions such as China, EU, West Asia, the USA, the UK, Japan, South Korea, Malaysia and Singapore, through imports. The country’s trade deficit in the last financial year was $ 117 billion. The Reuters’ forecast of India’s trade deficit, made in April, this year, is $133 billion in 2010-11 and $155 billion in 2011-12. Obviously, these forecasts did not take into account the new trade protocols India signed with USA, France and China since President Obama’s visit in November. China alone is expected to dig a $24-billion deficit hole into India’s bi-lateral trade account, this year. India’s merchandise trade with China is projected to top the $66-billion mark this year, up from only $10 billion just five years ago. The country’s trade deficit with China was only $1.5 billion in 2005.

Chinese Prime Minister Wen Jiabao, during his visit to New Delhi, spoke of a $100-billion bi-lateral trade target with India by 2015. He justified his mission statement by leading a 400-member strong Chinese business delegation to the country. The Chinese premier meant business albeit mostly Chinese merchandise export. He paid no attention to India’s internal and external security concerns, objection to Chinese claims of Indian territory, Chinese military build-up along the Indian border, Chinese arming of Pakistan being oblivious to Pakistan-originated terror attacks on India, and the issue of stapled visas to travelers from Jammu & Kashmir.

Wen Jiabao had a single point agenda that is to sell Chinese merchandise to India to boost Chinese economy and employment in China. And, he strongly pushed the business proposals through and secured India’s commitment. India’s business community is too happy to do business with China to make fat profits out of cheap imports. The Reserve Bank-permitted Rupee convertibility on trade account allows Indian businessmen to raise external commercial borrowing to pay for Imports. Today, the external commercial borrowings comprise the highest portion of India’s foreign debt, over 27 per cent.

Indians, who don’t spare an opportunity to preach austerity to the world, are probably among the biggest consumerists showing off fleet of cars, private jets, choppers, billion-dollar home, villas in India and abroad, farm houses, private islands and yachts, expensive holidays abroad, jazzy weddings accompanied by week-long high cost festivities and thousands of invitees, and billions of dollars of unaccounted tax-evaded money stashed in foreign banks. Their otherwise poor country, which, according to the latest IMF report, ranks among the lowest (127th) in the world with per capita GDP of only $3015 at purchasing power parity (PPP), is also among the world’s top debtor nations in terms of both external and internal debt, largely to support the lifestyle of the rich. The Reserve Bank estimates put India’s external debt at the end of 30th June, 2010 at US$273 billion or about 22 per cent of its GDP. The country’s gross public debt is estimated at Rs. 2.8 million crore, representing 85 per cent of its GDP. The public debt of even the United States, the world’s largest spender, as a percentage of GDP stands a notch lower than India’s at 84 per cent.

In April-June this year, there has been sharp increase in India’s external borrowings, almost by US$10.8 billion or by 4.1 per cent over the corresponding period last year. Other than the external commercial borrowings, short-term borrowings represented 27.3 per cent of the total foreign debt, NRI deposits 17.6 per cent and multilateral debt 16.4 per cent. Although India’s present public debt situation can’t be termed ‘alarming’ as yet, but the increasing external borrowing leaves little room for complacency especially in view of the country’s growing trade gap and the government’s and industry’s inexplicable apathy towards exports. Foreign earnings from invisibles especially from remittances, for which the government can hardly claim credit, are slowing down for various internal and external reasons.

Also, there is nothing much to brag about the RBI’s gold and foreign currency reserves which can bail the country out in the case of a forex crisis in view of high trade deficits and the growing pressure on the central bank for external debt servicing. The Reserve Bank’s foreign currency reserves as of 29th November, last, were only US$297.96 billion. How much of these reserves were on account of the hot money flow in the secondary market are not clear. The RBI investment in foreign currency denominated bonds was a pittance, only US$250 million. Thanks to the RBI’s decision to buy 200 tons of IMF gold a year ago, the central bank’s gold reserves stood at US$22 billion towards the end of last month. A hefty increase in oil prices, a food crisis or a war-like situation along India’s borders can change all the RBI’s forex reserves calculations which are hardly comfortable even under current economic parameters.

Suffice it to say that the government, which has hardly been functional in the last five months or so because of the continuously unfolding large official-level corruption cases and the administration’s dogged attitude against impartial parliamentary probe into the 2G spectrum allotment case, the biggest of corruption cases ever, by a joint parliamentary committee (JPC), should be more careful about opening a Pandora’s box on the import front just to appease heavyweight visiting foreign dignitaries, heads of states or heads of governments. Both the government and the industry must practice some sort of austerity before it is too late, even if that means a small slow down in India’s GDP growth. India must earn to buy all its comforts. It is dangerous to live well on borrowed funds for long. (IPA Service)