Falling crude prices to help India manage trade deficit

Declining crude oil prices will help India manage its trade deficit comfortably even in the backdrop of declining exports and eroding foreign exchange reserves.

"The downside risk to oil price in the current account so strongly manifest till recently has receded and thus the likely rise in trade deficit due to slowdown in exports may be offset", the Mid-Year Review of the economy tabled by Government in Parliament said.

India's trade deficit during the first seven months of the current fiscal (April-October) has shot up about 60% to $73 billion, primarily on account of soaring crude prices.

The per barrel crude oil prices in the international market which have declined sharply from a high of $147 to below U$40, will significantly reduce the country's import bill for the remaining part of the financial year. Oil accounts for nearly one-third of country's import bill.

The developments following global financial meltdown which will have a negative implications of country's balance of payments position include decline in exports, outflow of FII funds and declining foreign currency reserves.

The exports, according to the review, has declined by 12.1% in October.

It attributed the decline in export growth in October after a period of 15 years "mainly to spike in the growth rate to 48.8% in October 2007." On the outflow of FII money from the country following following crisis in developed economies, it said, "though the risk of enhance level of net FII outflows remain, barring distress sale, this is somewhat bounded by the present lower level of equity markets."