A robust policy response to avoidable and useless overseas shopping binge, resultant sharp fall in the exchange rate of the rupee and some improvement in the global economy would have done the trick. But before a quick look at the latest figures appear reassuring.

The latest trade figures for December 2013 show exports rising by close to 3.5% and trade deficit is around $10 billion.

What is significant and calls for a detailed look is the sharp fall in imports. The overall imports have fallen by 15.25% in December last compared with December 2012. Thus, imports in December 2013 stood at $36.5 billion against $43 billion during the same period in the previous year.

Why have imports fallen? A major contribution in the import fall in the sharp decline in imports of gold and silver. Against over $5 billion imports of these materials in the previous year, only $1.77 billion of gold and silver had been imported last month.

As one can expect, with the general deceleration in industrial activity, industrial goods imports must have fallen drastically. We have been on an overseas purchase spree, importing coal, oil, natural gas and general merchandise. It appears, a sudden brake has been clamped on this.

Non-oil imports during December, 2013 were estimated at US $ 22.5 billion which was 23% lower than non-oil imports of US $ 29.3 billion in December, 2012. Non-oil imports during April-December, 2013-14 were valued at US $ 215.4 billion was lower by11.1% than the imports at US $ 242.4 billion in April-December, 2012-13.

Consequently, trade deficit, that is, excess imports over exports, have come down drastically. Trade deficit is at $10 billion in December last, against around $17.6 billion in same month a year ago. Overall for the period April to December, the deficit is lower but not significantly because until June 2013 gold imports had not decreased much.

The implications for the current account deficit, that is the net amount payable by the country over its receipts of incomes and other items from overseas, is enormous. Given these trends, the overall current account deficit should be around $55 billion during the current fiscal year, against $close to $90 billion of last year.

The large current account deficit had looked somewhat difficult to fund in the absence of equally large inflows of funds from overseas. In times of global uncertainty, since funds flows had become rather uncertain the run away deficit had threatened external viability of the country. Without dipping into the foreign exchange reserves, it was becoming increasingly difficult to meet external payments obligations.

That was like dipping into the family’s savings to meet current consumption needs – not the best situation to be in. With the current trends in trade, that situation would not be repeated. It should be possible to meet the current consumption needs – that is, imports – from current income (that is exports) and some inflows of capital (like foreign direct investment and FII flows and remittances).

Against this background, it should be important to keep in place the restrictions on certain types of avoidable imports. Certainly gold and silver imports are such. The higher duty on gold imports coupled with other restrictions have worked well and these should not be removed under any circumstances. The society’s craving for gold is economic wastage and outflow of savings from the country to overseas.

Imports of other items like coal should also be restricted and efforts need to be doubled to increase domestic production. India has fourth largest coal reserves in the world and there is no possible reason why instead of mining coal in India this should be imported in rising volumes as was happening last couple of years. Imports of coal meant sending out employment and income creation opportunities to overseas rather than creating these in the domestic economy.

Although detailed figures are not immediately available, lower imports of coal and other materials would have contributed to bring down overall imports.

Additionally, India’s export growth has always been related to the fortunes of the global economy. With the first green shoots reappearing and some pick up in global demand, India’s exports have risen. In this, the fall in the value of the rupee from around Rs52 to a dollar to around Rs62 over a period of just over one year must have played a part.

India’s textile exports, for example, had benefited much from this, according to some industry circles. At the same time,. The never-ending and ever worsening political situation in Bangladesh had also helped Indian exporters to make a break. In some cases, India’s exports have gone through the Bangladesh route.

The question is can these trends be sustained or things will once again fall back into the same old pattern? Obviously, one cannot depend on a depreciating exchange rate all the time. It should recover or at least not go down further. Hence, the exporters will have to look for other drivers for export growth –either through diversification or quality improvement. Exports are a high pressure job where you have to run even to stay where you are.

Secondly, we must not be goaded into complacency. The slightly improving external payments should not lull us into believing that things are permanently comfortable. Any relaxations, for example, in gold imports norms and disincentives could prove to be as much grievous as previously. The fear that smuggling will increase in case the stringent conditions for gold imports are not speedily removed can be misplaced. After all it is duty of the state to be vigilant and give in to smugglers.

Thirdly, and hopefully, the global situation should keep improving from now on. That should help the exports.

The caveat is that if industrial sector improves rapidly and we run into supply constraints once again –for essential raw materials and inputs like coal—imports might start going up. Then, the situation will once again be touch and go. The only solution there would be to double up domestic growth of upstream core industries. Without that you cannot possibly hit the high road to sustainable growth. (IPA Service)