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External borrowings to dent Indian exports: TPCI

In her maiden budget speech, the Union Finance Minister, Nirmala Sitaram proposed the idea of increasing India’s external borrowings in order to inject additional liquidity in the domestic market. However, this move could have an adverse impact on India’s exports, at least in the short run. “Sovereign bond demand will rise, which will appreciate the price of rupee slightly… this might impact our exports by up to 5 per cent in the short-run. Since India’s export basket has significant representation of primary and labour intensive products, the elasticity test will work and can be a stabiliser, in the long-run,” commented Mr Mohit Singla, Chairman, TPCI.

At present, mounting trade protectionism, along with tensions in the Middle East, have hampered exports and widened India’s trade deficit. As per the latest official figures, India’s trade deficit during May’19 widened to US$ 15.36 billion as against the deficit of US$ 14.62 billion in May’18, despite a 3.93% rise in merchandise exports during the same period. The widening trade deficit is a double whammy for the economy, which is already bowed down due to a slowdown in internal consumption.