India’s Trade Deficit: Avocados & Blueberries: The Solution to India’s Soaring Trade Deficit?

India’s trade deficit is widening and the main reason is rising energy prices due to geopolitical conflicts and supply shortages. Credit Suisse’s Neelkanth Mishra has a solution to salvage the situation, and it involves destroying imported blueberries and avocados.

India is a net importer of commodities and energy, prices of which have risen sharply in recent months. Data shows that between 2015 and 21, India imported 88% of its annual oil consumption and 29% of coal in 2020.

“It (energy) has become significantly more expensive than it used to be and that’s why it’s important to change our import basket,” Mishra told ETNow.

“So if we can’t and shouldn’t reduce our imported energy by that volume, we need to reduce imported avocados, we need to reduce imported blueberries, and I know it’s small amounts, but wherever we depend on imports which are to a small extent discretionary, we need to lower those imports,” he said.

This increase in energy costs will have a negative impact on India’s current account deficit. India’s current account deficit could widen to a 10-year high of 3.3% of GDP in the current fiscal year, according to Morgan Stanley.

The expansion of CAD indicates that the value of imports exceeds the value of exports. India’s current account deficit hit a 13-quarter high in Q3FY22, although it is expected to have eased in the following quarter.

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Among the ways to improve India’s balance of payments (BoP) deficit, Mishra said one is to get more capital. “We can be included in global bond indices, which would bring in $30 billion to $40 billion in a year,” he said.

Credit Suisse has posited that earnings in Asia-Pacific will see an earnings downgrade, leading to further disruption in global markets. And so, says Mishra, capital flows are unlikely to pick up, and getting more capital will be a challenge.

“Although direct trade and financial exposures are limited in the context of the ongoing conflict, elevated crude oil prices may widen the current account deficit, while foreign portfolio investors could remain risk-averse towards emerging markets, including India,” the Reserve Bank of India had said in its 2021-22 annual report.

Mishra also said India could increase exports but covering the BoP deficit that way would take around 2-3 years, he said.

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