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India to set up first fab for semi-conductors in 3 years, double exports

India has expressed concern over the widening trade deficit, while revising its export target upwards. The new strategy document from the commerce ministry has pegged a target of $450 billion for India’s exports in three years — double the current exports.

India’s trade deficit has ballooned from around $8.6 billion in 2002-03 to $118.3 billion in 2008-09, wiping out its gains in services export, such as those of IT, BPO and tourism.

Trade minister Anand Sharma said the deficit is clearly unsustainable.

“Imports in 2013-14 are projected to be about US$ 658 billion, against exports of about US $ 379 billion. The trade deficit will increase by nearly two and a half times to US$ 278 billion in
2013-14. This is unprecedentedly large, not just in absolute terms but also as a percentage of Gross Domestic Product (GDP), at 13% of GDP,” Anand Sharma said today at a press conference.

If trade deficit increases, it will put India at the mercy of foreign stock market investors, Sharma pointed out.

“The large growth in the size of the BoT deficit on merchandise account will result in a significant expansion of the current account deficit, in turn, leading to a reliance on foreign capital inflows to finance the deficit.

“Foreign portfolio investment is still a major part of capital inflows and past experience suggests that such flows are indeed volatile. Hence, a large widening of the trade deficit can potentially result in payments difficulties. And, such a situation is simply unacceptable because it may jeopardize the entire growth process,” he said.

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, he added, painting increased exports as the only way out for India.

To inrease exports, special focus will be retained on sectors such as engineering goods, drugs and pharmaceuticals, chemicals and the electronic sector. Leather products and textiles, gems & jewellery, agriculture, plantation crops, marine products and iron-ore exports will also be encouraged.

India will also have a special ‘Brand India’ promotion campaign and also establish at least one fabrication facility in the next three years, which, in turn, will spawn a large growth in the domestic electronics industry, Sharma said.

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