Growing deficit continues to be a serious threat to Indian economy

Rising current account deficit and widening trade deficits point to a lower growth rate while uncertain global macro-economic environment poses another threat


During the first quarter of FY2012-13, India’s current account deficit (CAD) rose to 3.9% of GDP against 3.8% same period of the last fiscal. For FY2011-12, the record high trade deficit last fiscal had pushed up the CAD to 4.2% of GDP. The current account deficits indicate serious macroeconomic imbalances that could put the Indian economy at risk.

Finance Minister P Chidambaram, speaking at the 26th Meeting of the International Monetary and Financial Committee, said that India’s current account deficit has remained elevated during the last few quarters due to widening of trade deficit reflecting worsening global situation. And due to the uncertain global macro-economic environment and slowing domestic growth, the financing of the current account deficit will continue to remain a challenge, he said.

Nomura Securities expect the current account deficit to reach record high in the third quarter. It estimates that the current account deficit would worsen to an all time high of around 4.9% of GDP citing the sharp deterioration in the trade deficit as the main reason.

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S&P projects the current account deficit for the financial year to be 3.5% of GDP, below last year's 4.5%, given the inflow of foreign direct investment, and portfolio investments. However, S&P said it has cut its FY13 growth forecast for India to 5.5%, from 7% previously, due to soft domestic and external demand.

The International Monetary Fund (IMF) on Monday slashed India’s growth forecast for calendar year 2012 to 4.9% from 6.2% in July. The IMF has cited "continued investment slowdown" and further deterioration in the global economy as the main drivers behind the downgrade. In its July outlook, the IMF had estimated India’s 2013 GDP growth at 6.6%. The IMF expects India to end the year with a current account deficit of 3.8% of GDP which again, is out of line when compared with other Asian economies.

The World Bank too, recently cut India’s growth forecast for the current financial year to 6% from the earlier estimate of 6.9%, citing corruption and uncertainty in policy issues.

According to monthly customs data, the trade deficit widened to 12.2% of GDP in Q3 from 9.7% in Q2. While oil prices have risen, most of this worsening is in the non-oil segment. The oil trade balance has remained broadly unchanged (at -6.1% of GDP in Q3), while the non-oil trade balance has worsened to -6.1% of GDP from -3.3% in Q2.

According to the commerce department, exports contracted for the fifth straight month in September to 10.8% to $23.7 billion from a year ago. Imports rose by 5.09% to $41.8 billion on a 31% rise in oil imports to $14.1 billion. The trade deficit swelled to an 11-month high $18.1 billion from $15.7 billion in August.

Non-oil imports for the month showed a contraction of 4.5%, indicating that the economy was still struggling but rising crude consumption was worsening the trade deficit. The high trade deficit last fiscal had pushed up the current account deficit to 4.2% of GDP.

Exports have dipped sharply this fiscal due to shrinking demand from the West, a major market for Indian goods, and other markets such as Japan and Korea. The sectors affected the most include engineering goods, petroleum products, gems and jewellery, drugs and pharmaceuticals, and readymade garments.

In a recent press release, M Rafeeque Ahmed, president, Federation of Indian Export Organisations (FIEO) citied contraction in global demand and deceleration in manufacturing as the primary concerns for the slowdown. He stated that given the existing macro-economic scenario, India (as per IMF Fiscal Monitor) has the highest levels of fiscal deficits in the world, at 9.5% of gross domestic product (GDP). Only Japan has performed worse than India and even Europe (Spain, Ireland and Greece) has shown better public finances. Mr Ahmed stated India’s expected growth rate for the Indian economy in 2012 is lower than the Asian average, and far lower than the average (6.7%) for developing Asia. The high fiscal and current account deficits indicate serious macroeconomic imbalances that could put the Indian economy at risk.



GoM finalises draft of Land Acquisition Bill

The government said some land size thresholds on private purchases in the LA Bill, have now been left to the discretion of states


New Delhi: Days after a ministerial panel finalised the draft of the Land Acquisition Bill, the government on Thursday said some land size thresholds on private purchases have now been left to the discretion of states, reports PTI.

"What we are stipulating in this law is that there will be a rehabilitation and resettlement (R&R) package for private purchase of land wherever private purchase of land for private parties is taking place. But the threshold beyond which it will apply is left to the state government," Rural Development Minister Jairam Ramesh told reporters about the draft bill finalised by the Group of Ministers (GoM) chaired by Agriculture Minister Sharad Pawar.

It is a major shift from the earlier proposal in the Bill which had said that the R&R on private purchases was to apply to all acquisitions above 100 acres in rural and 50 acres in urban areas.

"West Bengal may say that any land beyond one acre will have R&R, Punjab may say any land more than thousand acres...that is entirely up to the state governments," he said.

The draft of the long-delayed bill was finalised at the third meeting of the ministerial panel on 16th October.

The Minister said that according to the final draft, approval of gram sabha and other such institutions like panchayat will be required for acquiring land in Scheduled Areas.

Ramesh, who discussed the bill with Pawar today, said its final draft will now be placed before the Union Cabinet and is expected to be introduced in the Winter session of Parliament.

Talking about the states' role specified in the bill, he said, "If the state does not want to acquire land, it is free not to acquire land. This bill does not force any state to acquire land. When you acquire land, you acquire it according to this law," he said.

The government had constituted the GoM about a month ago after some ministers voiced strong reservations against certain provisions of the bill at a Cabinet meeting.

The Bill was introduced in Parliament in September last year and was referred to a Parliamentary Standing Committee which submitted its recommendations in May.

It has been hanging fire since long even though the National Advisory Council headed by Sonia Gandhi has been pushing for the law and framed its broad contours.


Builder told to pay Rs30,000 to housing society in Navi Mumbai

The housnig society argued that the building firm failed to complete the lease deed and transfer deed formalities since 1988 which resulted in the stamp duty swelling up to Rs6.5 lakh


Thane: The District Consumer Redressel Forum in Thane has directed a building firm to pay compensation of Rs30,000 towards deficiency in services to a housing society in Navi Mumbai, reports PTI.

While absolving CIDCO of any liability, the Forum, headed by Jyoti Mandale and member Smita L Desai, ordered Ibrahim Abdul Kadir, Parvez Imza Kadir and Fazel Ismail Kadir--all directors of Liberty Investment, to pay the charges to Liberty Cooperative Housing Society located in sector 17 of Vashi.

The society argued that the building firm failed to complete the lease deed and transfer deed formalities since 1988 which resulted in the stamp duty swelling up to Rs6.5 lakh.

CIDCO was also made the respondent since the plot of land was given on lease of 60 years.

The court observed that the builder has failed to transfer ownership rights which amounts to deficiency but rejected the argument that CIDCO is also party to the act.

The Forum asked the firm to give Rs25,000 as charges for causing mental agony to the society and Rs5,000 as legal expenses.



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