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Monday, July 2, 2012

India's external trade balance has worsened to record lows.

 In March quarter, the current account deficit (CAD) stood at 4.5% of the Gross Domestic Product (GDP). For the full year, the same stood at 4.3%. Declining exports due to slowdown in global economy and strong crude oil demand has negatively impacted the CAD. And this has impacted the rupee negatively. It may be noted that the rupee has depreciated by 25% over the last one year. In fact, it touched a record low of 57-58 a dollar recently. While RBI has taken a few steps like easing the external borrowing norms for companies it remains to be seen whether it will have a meaningful impact in curbing the rupee's fall. We believe the best way to do the same is to take steps that shall narrow the trade deficit. Making exports competitive by providing tax sops to exporters is one such step. Policy reforms attract FII/FDI flow into the country. Even that would provide some respite to the falling rupee. Further, falling crude prices also act as a blessing in disguise.

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