66% of Indian Economy Interwoven with Global Economy

As the country’s external engagement in terms of trade of goods and services has crossed USD one trillion , as much as 66 per cent of India’s economy has been inter-woven with the world economy, with the result that all major global events have begun to leave significant impact on the domestic market, a latest ASSOCHAM study has pointed out.

“Despite slowdown in imports this fiscal, India’s merchandise imports led by crude oil would be around USD 450 billion and exports of about USD 340 billion…aggregating close to USD 800 billion. The services exports and imports would add another USD 240 billion, well above the crucial USD trillion mark… That would amount to significant ratio of the country’s GDP in dollar terms”, said Mr. Rana Kapoor, President ASSOCHAM.

As the currency value has depreciated over the last few months, the size of the Indian economy, measured in hard currency at current prices would be around USD 1.6 or USD 1.7 trillion, the ASSOCHAM paper on “India’s External Engagement”, said. The size of the Indian economy had reached the near USD 2 trillion, but the rupee depreciation has squeezed its size in dollar terms.

It said such a large inter-face with the world trade of goods and services makes the country that much more vulnerable to the developments across the globe. “The risks could be price of key import items like crude oil, gold etc or demand slowdown for the goods and services in major markets,”, said Mr. Kapoor.

The study suggested that while there can be no looking back for the open trade policy, the solution to risk from global events lies in spreading out the trade portfolio all across the world – from Latin America to ASEAN to East Asia, North Asia besides the traditional partners in North America and continental Europe.

“While some ground has been covered in Latin America and African markets, the direction of trade needs to be followed up rigorously,” the ASSOCHAM paper said.

Going by the data of the fiscal year 2012-13, India’s merchandise exports amounted to USD 306 billion while imports exceeded USD 500 billion. Services imports cost the country USD 81 billion while exports on this count earned USD 145.7 billion. The aggregate of these global commercial transactions was over USD one trillion.

“As a growing economy, the recent slowdown notwithstanding, we have become close to USD 600 billion market for the world producers of goods and services. As our exports, in turn, fall shorter than the imports, we need to catch up by boosting our manufacturing, making it competitive enough”, said ASSOCHAM Chief.

He said the fact that India’s trade deficit was USD 195 billion , almost equivalent to two-third of the export earnings goes on destroy the contention of some of the developed countries which charge India of being inward looking.

According to the study, India’s two-way POL (petroleum, oil, lubricant) trade itself is about USD 230 billion, as per the data of the previous fiscal. The crude oil imports were USD 169 billion and exports of refined petroleum products from the country’s top refineries like Reliance, were USD 60 billion.

“While the petroleum products remain the number one export item for India, the shipments are far short than the crude oil import bill,” said Mr. Kapoor.