Economic report

The latest economic report on the country offers mixed news. There is a marked decline in the balance of payments (BoP) deficit, something that had become a major worry since the recent past. The figures for the last five months of the current fiscal year show that the BoP deficit has come down to 3.35 billion, from Rs 14.5 billion during the same period last year. The BoP situation has improved due to improvement in remittance and some easing of the trade deficit.



The remittance inflow has increased during the review period and data shows that it grew by more than 10 billion rupees. But the other culprit that sent the BoP into the red in the past also showed improvement to some extent. Modest rise in exports and almost no growth in imports helped shrink the chronic trade deficit.



Figures show that exports grew by 8.5 percent, while imports grew at a much slower rate of 0.6 percent, bringing down the overall trade deficit to Rs 127 billion. Since this is such an insignificant gain--trade deficit in net terms decreased by only one billion rupees-- there is hardly room for complacency. Since the slowdown in imports could be only a short-term phenomenon and may have been caused by excess surplus or by the business cycle, the trade deficit will rise again sooner rather than latter.



Though exports to India jumped by 11.7 percent, mainly due to rise in demand for thread, jute goods, wire, cardamom, plastic utensils and M S pipe, exports to the overseas market expanded only nominally. And this is the main cause for worry. Our major exportable items to third countries have been woolen carpets, tanned skin, pashmina, readymade leather goods and tea items.

If we are to make a significant dent in the trade deficit, we must raise our exports -- both in volume and value -- to third country markets and for that we must urgently diversify the exports.



One of the major short-term worries, as pointed out by this economic report, is inflation. Inflation remained high at 9.6 percent in mid-December 2010 and the price of food items during the period went up by more than 15 percent. When prices of basic food items such as vegetables, sugar, milk and cereals go up, it hits the poor disproportionately hard. And failing to curve inflation in the medium and long term will only aggravate the country´s poverty situation. The central bank should take immediate measures to curb inflation, something that will not be easy given that inflation is rising steadily in the region, particularly in India.

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