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Trade to GDP ratio tops 25%
By agencies
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Tuesday, 14 June 2005, 19:30 IST
CHENNAI: The country's trade to GDP ratio hardly changed at all between 1980 and 1990; it remained fixed at a little over 14 percent.
Things have moved rapidly since then. Three years into the reforms, the ratio was already above 18 percent. That was in 1993-94. Contrary to what is generally believed, this increase was attributable more to an increase in exports than to increased imports.
At the time the reforms were initiated, the most dramatic change was, of course, in the field of import licensing, coupled with a deliberate easing of the foreign exchange constraint to imports. The reason why, nevertheless, it was exports that registered the most growth over the period, seems to be the dramatic fall in the value of the rupee over the first three years of the reforms, which made exports more profitable, and imports more expensive.
This has remained the pattern ever since. While both exports and imports have grown faster than GDP, thereby pushing the trade-GDP ratio to 25.6 percent for the year 2003-04, the overall growth in exports has outpaced the growth in imports.
The export to GDP ratio almost doubled from a little over 6 percent in 1990-91 to 11.5 percent in 2003-04. The growth in the import to GDP ratio was more moderate, from 8 percent to 14 percent. Imports exceeded exports in 1980 and in 1991, and they continue to do so in 2003-04, by almost 25 percent. But the difference between the two in proportionate terms has been coming down, rather than going up. The surprising thing is that this should have been happening despite the steady liberalization of the current account from time to time on account of burgeoning foreign exchange reserves. Indeed, it would seem that the trade deficit over the period has declined in proportionate terms, thereby in a sense adding to rather than drawing down our reserves, notwithstanding the contrary impression that is conveyed if one looks at the picture in absolute terms.
This is quite apart from the contribution made by the non-trade current account surplus to India's forex reserves in recent years.