Trade deficit growth leads to negative current account

Huge foreign exchange earnings from services as also high level of remittances from NRIs and other sources came to a naught with trade deficit growing by a whopping 167%.

Huge foreign exchange earnings from services as also high level of remittances from NRIs and other sources came to a naught with trade deficit growing by a whopping 167 per cent in 2004-05, casting a shadow over India's current account that turned negative for the first time in 3 years.

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But the situation is not as alarming as it may sound, as the high import was due to upbeat domestic industrial demand, a factor that is leading to a sustained economic boom. The Economic Survey, tabled in Parliament, said.

The trade deficit was also on account of surging global oil prices, a phenomena that is affecting the countries across the world and is causing an 'uncertain' inflation outlook, the survey pointed out.

"If domestic industry continues to remain upbeat, then sustained industrial demand for imports might increase... The rate of growth of the trade deficit might start slowing, if export related imports absorbed by the economy thus far, start to yield rapid growth of exports in coming months," it said.

With trade deficit growing by a whopping 167 per cent to $36 billion in 2004-05, earnings from invisibles, mainly remittances from Indians working abroad, which grew by 12 per cent to $30 billion, which had helped in compensating for trade deficit in past, could not be of much help.