FM maths: $5bn import curbs, $11bn more flows

Aug 13 2013, 16:00 IST
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It is also set to announce a clutch of measures to curb imports soon, targeting a saving of at least $5.5 billion on the country’s import bill. It is also set to announce a clutch of measures to curb imports soon, targeting a saving of at least $5.5 billion on the country’s import bill.
SummaryIt is also set to announce a clutch of measures to curb imports soon, targeting a saving of at least $5.5 billion on the country’s import bill.

quite large with the current servicing costs being as high as Rs 8,000-9,000 crore per annum. However, they may opt for using the facility to swap a part of high-cost domestic loans with overseas debt.

The CAD projection for FY 14 by the minister is more optimistic than those of independent analysts. Crisil, for instance, had put the figure at 4.5% of the GDP. The RBI has, in the first quarter review of macroeconomic monetary developments, said the CAD might have widened again in Q1FY13 after the moderation to 3.8% of the GDP in the previous quarter due to a widening of the trade deficit attributable to a sharp increase in good imports. It, however, expressed the hope that, going forward, the current account would show improvement thanks to the likely decline in demand for imported gold after the tariffs were hiked. “While the CAD may fall in 2013-14, risks to CAD financing have increased with firming up of US yields that caused global bond sell off and capital outflows from EMDEs, including India,” the central bank had noted. In line with this forecast, the merchandise trade data for July released on Monday said gold and silver imports stood at $2.97 billion in the month, down from $4.4 billion in the same period last year.

Last year, the CAD stood at a record $88 billion or 4.8% of the GDP but capital flows through various means were such that after bridging the deficit, $3.8 billion was added to the reserves. In the year before, when the CAD stood at $78.2 billion (4.2% of the GDP), there was, however, a draw-down from the reserves of $12.8 billion.

To contain the CAD, the government had earlier promised a clutch of measures including restraining imports of some identified “non-essential” items including some consumer goods and luxury items, besides compressing demand for oil, gold and silver. Chidambaram said in Parliament on Monday that notifications in this regard would be issued in due course. Government sources had said in case of a few items where there is a huge gap between WTO-defined bound rates and actual (applied) tariffs, the latter would be hiked. Trade analysts say since these items don’t account for a large chunk of our imports, curbing their imports might not be of any great help to curb the CAD. Says Criril: “... if imports have to be brought down

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