India's trade imbalance is growing, with rising energy costs owing to geopolitical conflicts and supply constraints being the primary cause. Neelkanth Mishra of Credit Suisse has a plan to save the situation, and it entails lowering imports of blueberries and avocados.
India is a net importer of commodities and energy, both of which have seen significant price increases in recent months. According to data, India imported 88 per cent of its yearly oil consumption from 2015 to 21 and 29 per cent of its coal use in 2020.
"It (electricity) has become significantly more expensive than it used to be, therefore we need to adjust our import basket," Mishra said to ETNow.
"So if we can't or shouldn't reduce our imported energy by that amount, we need to reduce imported avocados and imported blueberries," he said. "I realize they're small quantities, but whenever we're reliant on imports that are to some part discretionary, we need to reduce those imports," he said.
The increase in energy costs will have a detrimental impact on India's current account imbalance. According to Morgan Stanley, India's current account deficit might reach a 10-year high of 3.3 per cent of GDP this fiscal year.
When the CAD widens, it means that imports are worth more than exports. In Q3FY22, India's current account deficit reached a 13-year high, albeit it is likely to decline in the next quarter.
Mishra said getting additional money is one way to address India's balance of payments (BoP) imbalance. "If we can get into global bond indexes, we'll be able to pull in $30-40 billion in a year," he added.
According to Credit Suisse, Asia-Pacific profits will be downgraded, causing further market turmoil. As a result, according to Mishra, capital flows are unlikely to speed up, and obtaining further money would be difficult.
Although direct trade and financial exposures in the context of the ongoing conflict are limited, rising crude oil prices could widen the current account deficit, while foreign portfolio investors may be wary of emerging market economies, including India, "the Reserve Bank of India said in its annual report 2021-22."
Mishra also stated that India can increase exports, but that doing so would take about 2-3 years to address the BoP deficit.
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