India Shining? Trade gap set to create new records

India 's trade deficit in the 2003-04 financial threatens to be its highest ever. While there is little doubt that this is a product of ballooning imports and not-very- high growth in exports, a part of the rise in deficit may be artificial.

The 8% appreciation in the rupee over the dollar over last year means a spurt in value terms, even while the volume figures may not have risen as much.

Similarly, in earlier years when the rupee had only depreciated against the dollar, the trade deficit in dollar terms had come down.

As a result, for the April to February 2003-04 period, India 's trade deficit has touched $15.5 billion, which represents a 93% growth in the trade deficit over the corresponding period of the previous year. That puts the trade deficit is at an eight-year high.

The last time that it clocked a higher growth rate was in 1995-96, when the trade deficit grew by 110%. But that was on a far lower base of $4.8 billion as compared with a $8 billion base at present. But given the close correlation between import growth and the growth in the trade deficit there is a possibility that only a small part of the large trade deficit is attributable to an appreciating rupee. Import growth rate for April to February 2003-04 is 26.3%, just a little below the 28% growth in 1995-96. Total imports during the period stand at $68.5 billion, in comparison with $53 billion worth of exports.

Exports do not seem to be growing at as furious a pace as imports either. The export growth rate for April to February is at 15%, which is lower than the overall 2002-03-growth rate of 19.1%. The fact that exports have not been particularly hurt by the rise in rupee's value may be of some consolation. This trend seems to be indicative of the increasing quality competitiveness of Indian exports.

Also, imports are being driven more by a rise non-oil goods than oil imports. Capital goods form the largest component of non-oil commodities, which are meant for investment.