There is no denying it. The last two months have posted a positive showing in terms of the Current Account Deficit (CAD). Small improvements are being made, but the most important aspect of this is that the improvement to the deficit has come about because exports have registered modest growth in the last two months.
This does not automatically mean that the economy is on its way to a turnaround. Other indicators paint a completely different picture. The consistent fall of the rupee, shrinking space for public spending, and an inefficient power grid are only some of the major reasons for the downturn. Added to this is the damage caused by the floods to life, property, and arable land. Our economy will suffer from this damage for years to come. A 41 percent drop in the month-on-month figures does not account for all the other dark clouds hanging over our economy.
But importantly there are positive takeaways here as well. The government must start by analysing which sectors have posted growth in exports and work on facilitating them to increase output even further. But another important point to consider is that the CAD also shrunk compared to the same period last year, by $0.5 billion. This is not a massive difference, but the fact that the change corresponds exactly to the value of the year-on-year increase in exports shows that plugging the deficit requires a focus on the outflow of goods and services. Cutting down on imports alone is a stop-gap measure.
But beyond the question of exports, there must also be a focus on greater localisation for domestic consumption. If we can produce more goods that we consume here at home, the likelihood of us having to go to the international market for imports also decreases. Luckily, in this case, the solution for both increased exports and decreased imports (specifically through localisation) is essentially the same: Allow for industries to grow and watch the economy move towards stability—this may sound simple, but as successive governments have learned, it is anything but.