losing competitiveness – need for reforms
• Current account moves into surplus, raises export concerns
India’s current account moved in to surplus in the April-June quarter of the current fiscal year, after a gap of 9 years, a senior Finance Ministry official confirmed. Slow growth in imports, reflecting the persisting weakness in the investment sentiment, tipped the account, he explained. The current account was in surplus last in the January-March quarter in the year 2007.
The official data for the current account position during the April-June quarter is scheduled for release by the Reserve Bank of India (RBI) later this month. A surplus is expected to bolster the rupee, which could render India’s already subdued exports less competitive.
Speaking to The Hindu, the Ministry official said that if a surplus were reported, the RBI could be expected to intervene in the foreign exchange markets to prevent the rupee from strengthening too much.
The Federation of Indian Export Organisations has called for addressing the ‘overvalued’ rupee in discussions with the Union Commerce Ministry, saying Indian exporters were out-priced in the global market.
Exports to the U.S., India’s largest export destination, fell 1.1 per cent in April-July 2016 against the corresponding quarter in the previous year. In the same period, imports from China, the largest exporter to India, fell 7.4 per cent.
“Following a moderate current account deficit of $.4 billion, or (-) 0.1 per cent of GDP, in the January-March quarter, we expect current account to come in at a surplus of $2 billion or 0.4 per cent of GDP in April-June quarter,” a research report from financial giant Citigroup noted on Friday.
The report projected a broadly balanced current account in the July-September quarter. The forecast follows the release of the August trade data. Remaining almost unchanged in the last three months, India’s trade deficit reached $7.7 billion in August, significantly lower than the average monthly trade deficit of $9.9 billion seen in the last fiscal year.
In August, exports contracted for the second consecutive month after expanding for the first time in 19 months in June. Although exports contracted only 0.3 per cent (over August 2015), to $21.5 billion, imports contracted 14 per cent to $29.2 billion.
A current account in deficit reflects that the imports of goods, services and investment incomes into the economy outstripped the value of its exports.