The trade deficit of Asia's third-largest economy could widen to 12.8% of gross domestic product by 2014 from 7.2% in this fiscal year on current trends, leading to a higher reliance on foreign capital inflows to plug the current account gap.
The Indian government raised "serious concern" on Wednesday about a trade deficit that could more than double to $278.5 billion in three years and may cause an unsustainable current account deficit.
The trade deficit of Asia's third-largest economy could widen to 12.8% of gross domestic product (GDP) by 2014 from 7.2% in this fiscal year on current trends, leading to a higher reliance on foreign capital inflows to plug the current account gap, a trade ministry document showed.
Trade officials floated a series of possible measures in a strategy paper to bolster exports and slash import growth in key sectors such farm products and coal, which they said would keep the trade deficit at a manageable level.
"The projected BoT (balance of trade) deficit on the merchandise account of 13% is clearly cause for serious concern because it can lead to an unsustainable CAD (current account deficit)," the document published on Wednesday said.
India is on track to exceed a 15% export growth target in the financial year ending this March.
While IT and service exports have played a huge role in India's economic boom, merchandise exports have lagged behind the potential of the world's second-fastest growing major economy, which is seen returning to a pre-crisis growth rate of 9% soon.
India aims to double its merchandise exports within three years to match its growing economic heft and lift its exports to an annual total of $450 billion by 2013-14.
"Services earnings will most certainly grow over the next few years. However, it is unlikely that even their growth can sustain a ballooning of the BoT deficit to the size of 13% of GDP," the document said.
"A large widening of the trade deficit can potentially result in payments difficulties."
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