Falling crude prices to help India manage trade deficit: Govt

New Delhi, Dec 25 (PTI) Declining prices of crude oil
will help India manage its trade deficit comfortably even in
the backdrop of declining exports and eroding foreign exchange
reserves.

"The downside risk to oil price in the current account
so strongly manifest till recently has receded and thus the
likely rise in trade deficit due to slowdown in exports may be
offset", the Mid-Year Review of the economy tabled by
Government in Indian Parliament said.

India's trade deficit during the first seven months of the
current fiscal (April-October) has shot up by about 60 per
cent to USD 73 billion, primarily on account of soaring crude
prices.


The per barrel crude oil prices in the international
market which have declined sharply from a high of USD 147 to
below USD 40, will significantly reduce the country's import
bill for the remaining part of the financial year. Oil
accounts for nearly one-third of country's import bill.

The developments following global financial meltdown
which will have a negative implications of country's balance
of payments position include decline in exports, outflow of
FII funds and declining foreign currency reserves.

The exports, according to the review, has declined by
12.1 per cent in October.

It attributed the decline in export growth in October
after a period of 15 years "mainly to spike in the growth rate
to 48.8 per cent in October 2007."

On the outflow of FII money from the country following
following crisis in developed economies, it said, "though the
risk of enhance level of net FII outflows remain, barring
distress sale, this is somewhat bounded by the present lower
level of equity markets."

The review suggests that there could be greater outflow
of FII money with improvement in the equity markets putting
further pressure on the country's foreign exchange reserves
which have declined by over USD 65 billion since April 1,
2008.

The review further said, imports in the first seven
months of the current fiscal went up by 36.2 per cent over the
corresponding period last year. Petroleum, oil and lubricants
grew by 60 per cent to USD 66 billion during the April-October
period.

However, non-oil imports grew by a meagre 25.5 per cent.
The country had to pay more on oil front because of rising
global prices of crude.

Terming the short-term outlook for the balance of payment
"clouded" by external environment, the review said the
contagion effects of the global turmoil were being reflected
in form of decline in the capital account by 26 per cent in
the first quarter of the current fiscal compared to the robust
growth recorded in the first quarter of the previous two
years. PTI