Budget 2020

Economic Survey: BoP, FDI improve; dwindling exports, lower non-POL-non-gold imports cause for worry

Amiti Sen New Delhi | Updated on January 31, 2020 Published on January 31, 2020

Deceleration in export growth is seen as a driver of the slowdown   -  JIRAROJ PRADITCHAROENKUL

Weakening global demand and increase in trade tension affected exports, the Survey notes 

Improvement in the country’s balance of payments (BoP) position in the first half of 2019-20 backed by higher foreign direct investment (FDI), portfolio flows and external commercial borrowings and a narrowing current account deficit reflect well on the economy but dwindling exports and decline in non-petroleum-non-gold imports as a proportion of GDP spell possible trouble.

Due to weakening of global demand and increase in trade tensions over 2018-19 to the first half (H1) of 2019-20, the merchandise exports-to-GDP ratio declined to 11.3 per cent, according to the Economic Survey 2019-20 tabled in Parliament by Finance Minister Nirmala Sitharaman on Friday.

The BoP position, however, improved as the merchandise imports-to-GDP ratio also declined, resulting in a net positive impact. “This is because of the large presence of crude oil in the import basket. The share of gold imports, another important component of the import basket, has remained stable in spite of rise in gold prices,” the Survey said.

What is worrying about the import numbers is the reduction in the non-POL (petroleum, oil, lubricants)-non-gold imports as a proportion of GDP from 2018-19 to H1 of 2019-20, which is understood to be positively correlated with GDP growth. “Continuous decline in investment rate decelerated GDP growth, weakened consumption, dampened the investment outlook, which further reduced GDP growth and along with it, non-POL-non-gold imports as a proportion of GDP….,” the Survey pointed out.

According to figures published in the Survey, improvement in BoP position to $433.7 billion by September 2019 from $412.9 billion of forex reserves in March 2019, is on the back of CAD narrowing further to 1.5 per cent of GDP in the first half of 2019-20 from 2.1 per cent in 2018-19.

Net FDI inflows in the first eight months of 2019-20 at $24.4 billion was much higher than in the corresponding period of 2018-19.

POL, precious stones, drug formulations & biologicals, gold and other precious metals continued to be the top exported commodities while the largest export destinations were the US, United Arab Emirates, China and Hong Kong.

Crude petroleum, gold, petroleum products, coal, coke & briquittes constituted top import items and the top countries for imports were China, the US, UAE and Saudi Arabia.

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Published on January 31, 2020
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