Fixing the current account deficit
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