Trade deficit declines, FTAs increase exports, imports: Economic Survey

India's trade deficit declined to $106.8 billion between April 2015 and January 2016 compared with $119.6 billion in the corresponding period of 2014-15, the 2015-16 Economic Survey said on Friday.

Forecasting a strong economic outlook for the country, the survey said the Current Account Deficit (CAD) was limited to 1.4 percent of the GDP from April to September 2015 while foreign exchange reserves stood at 351.4 billion dollars as of February 5, 2016.

"During the current financial year (April-January), the growth in India's exports declined year-on-year by 17.6 percent and stood at 217.7 billion dollars. The imports also declined by 15.5 percent during the period to 324.5 billion dollars," said the survey that was tabled in parliament on Friday by Finance Minister Arun Jaitley.

Fall in Petroleum Oil Lubricants imports resulted in decline of imports in the current fiscal.

"While exports slowdown may continue for a while before picking up in the next fiscal, continuation of low commodity prices globally augurs well for sustaining low trade and CAD," said the survey.

The survey forecast that CAD as a portion of GDP is likely to be in the low range of 1-1.5 percent.

Lower CAD of 26.8 billion dollars (1.3 percent of GDP) in 2014-15 and 14.4 billion dollars (1.4 percent) in H1 2015-16 has been attributed to moderate growth in invisible surplus along with lower trade deficit.

According to the survey, India's Balance of Payments (BoP) position remained comfortable in H1 2015-16.

Shedding light on the rise in foreign exchange reserves, the survey said low CAD levels coupled with moderate rise in capital inflows contributed to the spike of 10.6 billion dollars in H1 2015-16.

"India's foreign exchange reserves at 351.5 billion dollars as of February 5, 2016, mainly comprised foreign currency assets equal to 328.4 billion dollars (93.4 percent of the total) and gold at 17.7 billion dollars, the survey added.

Foreign exchange reserves increase improved the external sector vulnerability indicators and reserves cover for the imports rose from 8.9 months to 9.8 months from March 2015 to September 2015.

India's external debt to GDP ratio is within safe limits at 23.7 percent, said the survey.

Commenting on India's Free Trade Agreements (FTAs), the Economic Survey said FTAs have led to increased imports and exports.

"Since the mid-2000s, India's FTAs have doubled to about 42 today. They have increased trade with FTA countries more than would have happened otherwise," said the survey.

However, trade on imports side is higher than exports side as India maintains relatively high tariffs and had larger tariff reductions compared to its FTA partners.

Trade flow on both sides (imports and exports) benefitted healthily in case of Association of Southeast Asian Nations (Asean) FTAs, exports rose by 33 percent and imports by 79 percent.

"The trade increases have been much greater with the Asean than other FTAs and they have been greater in certain industries, such as metals on the import side. On the export side, FTAs have led to increased dynamism in apparels, especially in Asean markets," the survey said.

Interestingly, 10 percent reduction in FTA tariffs on metals and machinery increased their imports by 1.4 percent and 2.1 percent respectively, compared with others.

"In the current contest of slowing demand and excess capacity with threats of circumvention of trade rules, progress on FTAs, if pursued, must be combined with strengthening India's ability to respond with World Trade Organisation-consistent measures such as anti-dumping and conventional duties and safeguard measures," said the survey.

Analytical and other preparatory work must begin in earnest to prepare India for a mega-regional world, the Economic Survey added.