Indian Rupee (INR) is constantly depreciating against the US Dollar (USD). If the trend continues the exchange rate of INR vis-à-vis USD may touch Rs 100 for a dollar before the end of this financial year. It could be a matter of great concern if India continues to import heavily from USD trade regions. Imports during April-August, this fiscal, grew by 45.74 percent to USD 318 billion. The trade deficit widened to a record USD 124.52 billion in the first five months of 2022-23 as against USD 53.78 billion in the same period last year. The rising USD did not help much to push exports. Moreover, India’s export basket is limited. Most economies are under pressure from high energy costs and domestic recession. Imports don’t figure highly in their economic agenda. India is 86 percent import-dependent on oil. While it can do little to compress the oil import bill immediately, it can certainly contain non-oil non-essential imports, at least for the time being.
The country must severely cut imports of gold and precious stones, including pearls, which account for the second largest import expenditure after petroleum. In value terms, gold and precious stones imports constitute nearly 13 percent of the country’s total merchandise imports whereas oil imports account for 21 percent. India spent USD 55.7 billion on gold imports alone in 2021. Similarly, a large amount was spent on importing precious and semi-precious stones, including pearls, last year. The imports were the highest before Covid-19 broke out in 2020. For unknown reasons, the country’s successive governments had encouraged gold and precious stones and metals imports to make a large section of the country’s bullion traders in Mumbai and Ahmedabad-Surat happy. Ironically, the market price of 30 grams of gold is nearly Rs 1,60,000 as against India’s per capita net national income of only around Rs 1,50,000. The rich often use gold to hide their black money and protect their wealth against near-constant INR devaluation.
Another major area of import is consumer electronics and semiconductors. India must investigate growing deficits in the electronics trade, which hit a record of USD 56 billion in 2021-22. Electronics have remained a major contributor to the country’s overall merchandise trade deficit, after oil & petroleum products. While electronics exports surged 41 percent last fiscal from the previous year’s USD 15 billion, imports jumped 35 percent to USD 70.8 billion, according to the commerce ministry. Earlier, the trade deficit in the electronics field had hit a record of USD 47 billion in FY19. The electronics trade deficit may increase to well over USD 60 billion, this year. It may be time to restrict electronics imports wherever possible and step up domestic production while seriously trying to ensure the speedy success of the country’s new semiconductor policy. India’s rising trade deficit and continuing hot money outflow from the secondary market, courtesy of foreign portfolio investors, are weakening RBI’s forex reserves and INR’s exchange value. While the government and RBI can do little to bring FPIs back amid the global financial turmoil, they can certainly contain avoidable imports such as gold, precious metals, cheap electronics, and other luxury products for the consumption of the rich. It may be time to focus on the much neglected ‘Make-in-India’ initiative while expanding bilateral Rupee trade and currency swaps to arrest the fall of INR and stabilise the economy.
