De-Lurking on the Net

April 14, 2013

India sits precariously in global recession

Filed under: India — Geekay @ 6:56 pm

During April-February 2012-13, India had £182 bilion deficit in foreign trade. India’s trade deficit is likely to widen between $193 billion and $196 billion in the last fiscal year. It sits precariously and sliding towards 1991 when balance of payments situation arose. The trade deficit grew mainly due to the 14.5 percent growth in imports and the 0.1 percent increase in exports; thereby widening the trade deficit by 49.2 percent during the period. India’s oil import bill leaped 40 per cent to a record $140 billion in Year 2011-12 as high oil prices bringing down its GDP growth rate.
India needs to see why it should import any thing other than the items which it definitely needs like copper, petroleum, fertilizer, gas products and edible oil. It of course have to import those items where it adds the value to export them back after finishing like diamonds, gems etc. But, it needs to eliminate or limit gold and coal import for domestic use even if it renews the Gold smuggling. India should not be importing any chemicals but rather building a domestic capacity to export it back. Currently European Union, Japan exports the most and China and Mexico imports most chemicals. There should be thinking of exporting of only finished goods rather than raw materials unless it is too abundant. Coal could be replaced by electricity for which it should use  hydel energy, domestic coal, solar, nuclear energy but alas reactors based on thorium which is abundant in India are never going to be ready in spite of ongoing research for eons and uranium dependence will remain in spite of growth in uranium production where India’s production increased by 73% in 10 years (2011). But China increased its production by 81 % in just one year and now its annual capacity stands 3.5 times of India. This is how the import bill stood –

                              2011-2012                2010-2011

Oil imports            $140 bn                    $73.7 bn

Gold and silver     $62 bn                     $31.2 bn

Coal                      $29 bn                      $8.6 bn

No wonder the rupee value is sliding for last few years. It slid 16 per cent in 2 years in dollar terms.The question to ask is if the exports can not increase due to global recession why should imports continue to gallop. Its current account deficit now stands at highest 6.7% in latest quarter which is an alarming figure.

The British Miners strike In 1984-85 [Photo Credit: Wikipedia]

How the coal import is allowed to be increased close to 4 times of previous year figure, one wonders. Is it due to production shortfall. If that is so then any figure will be justified. In the data both coal and oil imports have gone up. If it was just coal then one could have thought the coal has replaced the oil import but that is not the case. Also, privatising the coal mines has just led to big license scams only so far. The increase in production tonnage perhaps will come later. The coal India Ltd which meets country’s 81% consumption requirement has seen its annual production capacity stuck at same figure of 420-430 million tonnes for last 3 years to 2013. Clearly it is beyond Coal India Ltd to add more production. China’s coal production is 5 times that of India. Clearly, increase in coal production can reduce current account deficit as oil requirement should come down if the coal is used in electricity production and freight is moved onto electric railway lines. So, there is a need to remove quickly, the monopoly stranglehold of Coal India Ltd, the biggest coal miner of the world. Perhaps it should be broken into pieces – based on coal pits. The ones not being cost effective should be closed down. In mining, India has plentiful reserves but Coal India consistently fails to meet targets. The coal import permitted should only be to meet production shortfall and that too should be of higher grade coal from abroad. Also, there is a particular need to attend the rail transport bottleneck experienced by major coal consumers like steel producers or thermal power plants.

Maggie Thatcher ‘s example of selling the equity to general public should be followed. It can make more middle class investors by limiting the equity lots offered for sale thereby increasing number of investors. The preferential treatment should be given to sell the holdings to the workers. With coal strike almost every year in Dhanbad etc (in Jharkhand state), the trade union reforms along similar lines as ushered by Maggie Thatcher should be introduced where she brought a compulsory ballots by members before a strike can be called upon. The election of trade unions has to be more transparent on the lines of national election. The limit of terms should be introduced for the party posts etc-2. The  privatisation of coal India Ltd will also help in removing the subsidy India has to make so that state electricity boards can buy the coal at cheaper prices. That would mean the state electricity boards have to ramp up electricity prices meaning the electricity prices will have to be at realist and sustainable level and close to other parts of the country where they may not have a subsidy. It can also help in removing need for dispute arbitration on quality like the ongoing tussle between NTPC and coal India Ltd, where NTPC says – Why should it pay for the stones that coal India Ltd produces. Divestment or privatisation should not be allowed to be rolled back by trade unions as is the case now. The unions need to be confronted or how else India can confront its current account deficit.


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