New Delhi, Feb. 27: Although the accumulation of the $ 73.6 billion forex kitty has imparted a fundamental strength to the Indian economy, the country cannot have a viable external sector in the long term unless this is accompanied by a robust growth in merchandise exports.
This fact has been highlighted in the Economic Survey. It says that if the “uneven performance of merchandise exports” continues, this could introduce a structural weakness in the balance of payments in the medium term. It is only the buoyancy in the flow of invisibles that has contributed to rising foreign exchange levels.
The Survey has recommended that “micro strategies”, based on various policy pronouncements, should be evolved “to put export growth on a higher and sustainable growth trajectory”.
It states that exports hold the key to achieving a sustainable balance between the requirements of higher growth and the imperative of ensuring viability in the external sector.
The Survey further points out that the global outlook remains uncertain, given the weak growth impulses in the US, Europe and Japan and the downside risks to such recovery emanating from the volatility in international crude oil prices and the continuing geo-political tension in West Asia.
It highlights the fact that the decline in exports during 2001-02 was spread across both agricultural and manufactured commodity groups. While the former registered a fall of 2.2 per cent the latter plummeted by 3.9 per cent. Major exports like gems and jewellery, textiles, including readymade garments and engineering goods performed poorly.
On the plus side, the Survey observes that the rising level of foreign exchange reserves provides a cushion against any major external shocks. This resilience of the Indian economy has been vindicated by its handling, in the recent past, a series of external shocks. These include the Asian crisis of 1997, crude oil shock of 2000 and the global slowdown of 2001.
According to the Survey, the surging foreign exchange reserves have provided an opportunity to further relax existing capital controls and “expedite completion of the trade liberalisation agenda.”
It states that “notwithstanding various reforms, India’s tariffs remain high by Asian and international standards and its trade regime remains relatively restrictive.” The Survey is in favour of carrying roadmap for liberalisation of customs tariffs initiated in last year’s budget.