There is thus much more to the widening trade and current account deficit, than meets the eye. The best case highlighting structural features underlying the deficit was made in a strategy paper published by the commerce ministry more than two years ago. It was written when the economy was just finishing two consecutive years of 9% GDP growth, and it was prescient in anticipating the deficit crisis. It predicted that by 2013-14, the trade deficit would be close to $300 billion, almost 12% of GDP, nearly three times as big, in only five years.

The accuracy of that forecast is uncanny, and rather uncharacteristic of various government-produced long-term forecasts. The sheer size of the trade deficit means that for it to come down below an acceptable level of 3% of GDP, earnings from services and remittances would have to contribute 9% of GDP, or close to $180 billion in the current fiscal. It is a herculean challenge, which to the commerce ministry’s credit, was identified long ago. The strategy paper provides various ideas to boost export earnings, with product and market strategies. Read More

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