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Advanced economies hold the key to medium term recovery

BS Corporate Bureau

In spite of foreign exchange reserves of $50 billion, the Economic Survey says that capital account inflows need to be substantially improved to meet the growing demand of non-oil imports as envisaged in the 10th Five-Year Plan. Once economic growth picks up, a larger surplus will be required in the capital account to cover the rising current account deficit.

The emphasis, clearly, is on improving foreign exchange inflow, in the form of investments and commercial borrowings, rather than higher exports to finance any rise in imports.

Talking about exports, the Survey says the prospects of a recovery in the medium term depend heavily on policies adopted by advanced economies.

A marked deceleration in world output, the slowdown in the domestic industry and the September 11 attacks on the US have contributed to exports growing by only 0.6 per cent during April-December 2001-02 against 20.8 per cent during the corresponding period of the previous financial year.

The Survey also says that the recent appreciation in the real effective exchange rate of the rupee may also affect the competitiveness of exports. Between March 2000 and November 2001, while cumulative depreciation in the rupee was 9.2 per cent, the Indonesian rupiah depreciated by 29.4 per cent, Philippine peso by 22.3 per cent, Thai baht by 14.7 per cent, South Korean won by 13 per cent and the Singapore dollar by 11.4 per cent.

The global slowdown, the Survey adds, may also encourage an recourse to non-tariff barriers by various countries, thereby, impacting exports. Of the 134 anti-dumping investigations kicked off by the World Trade Organisation during the first half of 2001, as many as 88 were initiated by developed countries with China, Korea, Taiwan and India topping the list of countries subject to these investigations.

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