Govt raises 2-year export target by $100 bn

Expressing worries that it may run out of foreign exchange to pay for crucial imports in case of a massive pull-out by foreign stock investors, the government on Wednesday announced a massive plan to reduce the gap between exports and imports. The plan has increased export target for 2013-14 from $350 billion to $450 billion.India’s goods trade with the rest of the world, equivalent to 35% of its gross domestic product, results in a massive shortfall of $110 billion every year. This drains its foreign exchange reserves built up from inward investments and services export.Last year, the government had shortfall of $38 billion in its current account, which measures ‘current’ transactions, such as trade and aid, with the rest of the world.The trade deficit increased from just $8.6 billion in 2002-03 to $118.3 billion in 2008-09. The shortfall was met by a net inflow of $54 billion from in the form of investments last year, including around $33 billion foreign investment in Indian stock market.However, since the capital investments can be withdrawn at any time, the government is worried about running out of money to pay the rest of the world in case of a global investment turmoil, commerce minister Anand Sharma said.“Foreign portfolio (stock) investment is still a major part of capital inflows and past experience suggests that such flows are indeed volatile. A large widening of the trade deficit (as is happening now) can potentially result in payment difficulties. And, such a situation is simply unacceptable because it may jeopardize the entire growth process, Sharma said, explaining the rationale behind hiking the export target,” Sharma said.The revised target can be achieved if the government maintains the current export growth rate of 30-35% per year.The export sectors that will be pushed more aggressively are high value products such as engineering goods — which already account for 20% of India’s exports — drugs and pharmaceuticals, chemicals and the electronic sector. India will establish its first semiconductor (chip) production unit in three years, to get a grip over the galloping electronics imports from China.“Electronic machinery and electronic goods imports will balloon unless we establish a domestic fabrication facility and dramatically expand domestic production of down-stream industries from the fabrication facility,” Sharma pointed out.