Economic Survey 2015-16: Sectoral Overview - III
It focuses on India’s external sector including exports, imports, exchange rate and external debt among others.
Union Finance Minister Arun Jaitely on 26 February 2016 presented Economic Survey of India 2015-16 in the Parliament.
The Survey reviews the developments in the Indian economy over the previous 12 months, summarises the performance on major development programmes and highlights the policy initiatives of the government and the prospects of the economy in the short to medium term.
Exports & Imports
• Exports and imports together constitute 42 per cent of the GDP, even at the reduced levels in 2015-16.
• After reaching unsustainably high levels, trade and current account deficits moderated on import restrictions in 2013-14 and continued so in 2014-15.
• India’s merchandise exports have been declining continuously since December 2014, which is in line with the performance of export growth in different countries.
• During April-January 2015-16, India’s exports declined year-on-year by 17.6 per cent to 217.7 billion US dollars and this decline was broad-based.
• The decline in India’s exports owed to sluggish global demand and low global commodity prices, particularly petroleum.
• In keeping with the global trends of slow growth, imports have declined by 15.5 per cent in 2015-16 (April-January) to 324.5 billion US dollars.
• Lower imports of petroleum, oil and lubricants (POL) were the main reason for the decline in total imports.
• The moderation in trade deficit continues through in 2015-16 with further decline in global crude oil prices, with trade deficit in 2015-16 (April- January) placed at 106.8 billion US dollars.
• The composition and direction of trade is undergoing changes and sectors that are resilient are accounting for higher proportions to total trade and also changing the trade direction.
• During 2015-16 (April-December), there was a broad-based decline in exports to Europe, America, Africa, Asia and the CIS.
• Imports from all five regions declined, with the highest decline of 21.5 per cent in imports from America in 2015-16 (April-December).
Balance of Payments
• Despite the decline in merchandise exports during the first half (H1) of 2015-16, India’s BoP position remained comfortable.
• Some of the salient external sector developments are - lower trade deficit and modest growth in invisibles resulted in lower CAD, continued increase in FDI inflows and NRI deposits and net outflow of portfolio investment.
• Although, there was a net outflow under portfolio investment, capital/financial flows were in excess of the CAD and the absorption of the same by the RBI led to an accretion in reserves.
• Trade deficit (on BoP basis) declined from 74.7 billion US dollars in 2014-15 (April- September) to 71.6 billion US dollars in 2015-16 (April-September).
• The surplus of net invisibles increased by around 1 billion US dollars to 57.2 billion US dollars in the first half of 2015-16.
• Moderate growth in invisibles surplus coupled with lower trade deficit, resulted in a lower CAD of 26.8 billion US dollars (1.3 per cent of GDP) in 2014-15 and 14.4 billion US dollars (1.4 per cent of GDP) in H1 of 2015-16.
• Net portfolio investment recorded an outflow of 8.7 billion US dollars in H1 of 2015-16 as against net inflow of 22.2 billion US dollars in H1 of 2014-15.
• Net FDI reached the level of 16.7 billion US dollars in H1 of 2015-16 (15.1 billion US dollars in H1 of 2014-15).
• During H1 of 2015-16, net capital/finance flows was 24.9 billion US dollars as against 36.5 billion US dollars in H1 of 2014-15.
Foreign exchange reserves
• India’s foreign exchange reserves at 351.5 billion US dollars, as on 5 February 2016, mainly comprised foreign currency assets amounting to 328.4 billion US dollars, accounting for about 93.4 per cent of the total.
• With an increase in reserves in 2015-16, all traditional reserve-based external sector vulnerability indicators, namely foreign exchange cover for imports and short-term debt, have improved.
• Low levels of CAD coupled with moderate rise in capital inflows resulted in accretion in foreign exchange reserves of 10.6 billion US dollars in H1 of 2015-16.
• During 2015-16 (April-January), the average exchange rate of the rupee depreciated to 65.04 rupees per US dollar as compared to 60.92 rupees per US dollar in 2014-15 (April-January).
• This was mainly on account of the fact that the dollar strengthened against all the major currencies because of stronger growth in the USA.
• This trend was also due to the fact that China’s growth and currency developments this year deteriorated, impacting the outlook on other emerging markets owing to risk-aversion perceptions of global investors.
• However, on the positive side, the rupee has performed better than the currencies of most of other emerging markets (except the Chinese yuan).
• India’s external debt stock increased by 8.0 billion US dollars (1.7 per cent) to 483.2 billion US dollars at end-September 2015 over end-March 2015.
• This rise in external debt occurred on account of long-term debt, particularly commercial borrowings and NRI deposits.
• India’s external debt has remained in safe limits, with an external debt to GDP ratio of 23.7 per cent and a debt service ratio of 7.5 per cent in 2014-15.
• India’s foreign exchange reserves provided a cover of 72.5 per cent to total external debt stock at end-September 2015 vis-à-vis 71.9 per cent at end-March 2015.
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