From Deficit to Surplus! Current Account deficit and trade deficit and double digit growth ! Next 5 years ! A Road Map For India!

Indian current account deficit is 2.8%. In the capital account India is positive. Indian rupee is at Rs.71 per dollar. How can we make current account deficit positive in the next 5 years?

The two main items of the current account deficit is the remittances and dollars earned by Indian Corporates overseas. First let us take the remittances which account for 2% positive inflow to the current account revenue earner.

India has 12 million people joining the Indian workforce annually. There are about 31.2 Million abroad who sent remittances back home. There are two kinds of migrations to foreign countries, one is the highly skilled workforce and then there are labour forces who are mainly the working in Hospitality, Construction, Retail and health care sector.

We need to send about 3 million additional Indians to migrate to foreign countries annually.

The government should encourage the labour force to migrate to foreign countries. This has two benefits one is the remittances they will receive and secondly this will reduce the unemployment numbers in the country.

The bulk of  migration of labour force is to the Gulf Cooperative Countries and the developed nations. The government should reduce the tax structure to this NRIs by entering a tax treaty with these countries.

The countries of Asian Region should be next destination of migration. Countries like Malaysia, Thailand, Indonesia, Nepal, Sri Lanka, Japan, Korea, Vietnam, Philippines and Afghanistan provides an opportunity to work out a tax treaties and free flow of migrants to these countries.

Thus by encouraging people to migrate the government’s current account deficit may reduce by 1-1.5 % as the remittances come to pour in.

The second step is to encourage Indian companies to open up operation in the foreign countries.

This will solve the twin problem of the Current Account Deficit and Trade Deficit.

The BSE500 companies have more than $1 Trillion as reserves and surpluses in their Balance Sheet. If the India Inc. acquire business overseas and make Investments of $100 Billion annually for the next 5 years. Then there will be annual inflow of profit of more than $75-$100 Billion within the 5Years time. Then there will be further reduction of 1% to 1.5% in the Current Account  Deficit.

The Trade deficit is at $18 Billion per month. The per month trade deficit will reduce by 1%-1.5% i.e about $2 billion to $2.8 billion monthly. Which means the trade deficit will be in the range of $16.5 Billion.

The Government should give tax sops to all these companies earning foreign exchanges. That will make these companies highly profitable and invest in foreign companies. This will also help the Indian Worker in foreign operations get jobs and give boost to employment and migrations.

Exchange Rates:

The depreciated Rs.72 to a dollar has boosted up the trade deficit to $18 Billion ie Rs.1.296 Trillion which when converted to Indian Rupee while in deficit has to be multiplied by 72. The largest item in the trade deficit is the oil imports. If the Government is able to keep the exchange rate at Rs.60 dollar then the trade deficit will reduce by 15% in Rupee value. Which is about Rs.172.8 Billion. Therefore from Rs. 1.296 Billion it reduces to Rs.1.123 Trillion and it further reduces to Rs1.008 Trillion.

The current exchange rate of Rs.70-72 dollar makes foreign acquisitions expensive. There fore its imperative that keeping the exchange rate at Rs.60 has its advantages and strike a balance between import and exports.

A calibrated step to keeping the exchange rate at Rs.65 then Rs.60 is advised.

Growth: The remittances flow increase in the next five year will increase the GDP by 1%-15%. The Indian Companies of operating overseas will increase the growth rate by another 1%-1.5% making the GDP figure exceed double digit growth figures.