Govt ignored warnings on ballooning trade deficit in 2011-12: Assocham

Industry body Assocham today said the government ignored warnings thrown up by worsening economic indicators, particularly trade deficit, which rose by a staggering 49% during 2011-12, leading to the present crisis of unsustainable current account deficit.

"The trade deficit between 2010-11 and 2011-12 increased by as much as 49%, still there was no sign of concern visible either in the Commerce Ministry or in the Finance Ministry at that point of time," Assocham said in a study.

The tell-tale signs were clear that the situation would not be sustainable but certainly the early warnings given by the data were brushed aside, it added.

The unsustainable deficit in merchandise trade in FY 2012 threw a strong early warning about India's deteriorating current account deficit (CAD) as early as 15 months before the current crisis, but obviously the warning about widening import-export gap was overlooked, the study said.

The data clearly shows the damage to the macro situation was done in 2011-12 and not as much in 2012-13. If only the data was taken seriously and damage control was done in the subsequent years by way of import compression and push up in exports, the country would not have faced the present current account deficit (CAD), it found.

The study, which drew comparisons between the data of the last three fiscals, found that in 2011-12, the export-import of goods widened as much as 10 percentage points with trade deficit ballooning to $189 billion against $127 billion in 2010-11.

"It was the comfort zone of the inflows from the invisibles, particularly software services, which made the policy makers in the government complacent in 2011-12, placing misplaced optimism about the continuity of the trend, which did not happen," Assocham Secretary General D S Rawat said.

Inflows from software services rose to $62 billion in 2011-12 from $53 billion in the previous fiscal.

Though the gap between trade deficit of FY 2012 and FY 2013 was just about $7 billion, in absolute terms the numbers for both the years were alarming, the study revealed.

Looking ahead, export finance must be made available at much lesser rates while exporters need not be made to run in the corridors of the Commerce and the Finance Ministry for getting their legitimate tax refunds in the form of duty drawbacks, it said.