FY13: Hopes on trade front

With nothing but remittances going right, the external balance for the country is swinging out of its favour. Trade deficit soared to as high as $21.2 billion in FY12 compared to $15.5 billion), last year. Exports slipped by 5 percent year on year while the countrys imports surged by 11 percent to widen the deficit by a massive 37 percent. Although the two major crops; cotton and rice, which through their value addition are major drivers of our exports, did much better in FY12 as compared to the previous flood-affected fiscal, receding prices flipped the fortunes anyhow. Cotton production was at 13.6 million bales, up by 18.6 percent, in FY12; despite this textile exports fell by 9 percent to $11.3 billion in 11MFY12. Since details of June numbers are not public yet, for analysis, 11 months detailed data is used here. And as the numbers so far show, free falling cotton prices can rattle the countrys external account. In FY13, cotton production is estimated at 16 million bales with prices seemingly bottoming out; a decent growth in textile exports is plausible. A similar fate, but on a smaller scale, is in offing for rice exports. The gyrations in imports are largely dependent on the movement in international oil prices and there was a case of higher prices in the outgoing year. Oil prices, on average in FY12 were 17 percent higher over the preceding year, while imports of petroleum products were up by 32 percent in 11MFY12. This is because of around 11 percent year-on-year increase in quantity of petroleum products imported in first three quarters of this fiscal year. Oil prices have come down by a quarter in the past two months and are likely to remain lower in the new fiscal year than the average price in FY12. So some respite to the soaring import bill is a silver lining to the widening trade deficit. The increase in oil import bill explains the 75 percent surge in overall import bill while the rest of the items increased at a normal pace. With lower oil prices and bottoming out cotton prices, FY13 just may turn out to be a better year for trade than the previous one.