Export growth will also help generate private investment and employment

- India has adequate foreign exchange reserves to meet challenges and maintain stability on the external front

A growing trade deficit has prompted the government to actively ban imports. India's merchandise exports fell 8.8 percent to $33.88 billion in February compared to the same period last year due to the global economic slowdown. So far in the current financial year i.e. from April to February, merchandise exports have increased by 7.55 percent compared to the same period last year. At the same time, merchandise imports also fell by 8.2 percent in February and the trade deficit stood at $17.43 billion. The trade deficit for the fiscal year so far is $247.53 billion. It was around $172 billion in the same period last year. Continued strong growth in service exports has helped narrow the overall deficit. Although analysts expect the current account deficit to remain close to 2.5 percent of GDP in the current fiscal year and may get a little boost next year, bridging the deficit will remain a challenge.

A reduction in foreign direct investment inflows and continued selling by foreign portfolio investors may also put pressure on the overall balance of payments. Capital inflows may continue to be affected due to prevailing volatility in global financial markets and uncertainty over possible policy actions by major central banks. However, India has adequate foreign exchange reserves to meet immediate challenges and maintain stability on the external front. A systematic devaluation of the currency over time will also help stabilize the external account. In such a situation, the enthusiasm given by the government regarding the import ban is not appropriate from the perspective of immediate macro-economic stability. Even from the perspective of long-term economic management, it may prove not only unnecessary but also harmful.

The Union Commerce Secretary said that the strategy to limit 'non-essential imports' was working and due to this imports fell in February. The basic idea is import substitution. The government has been making continuous efforts to reduce imports for quite some time now. This is the reason why the duty rates were also increased along with other bottlenecks.

Recent reports suggest that the government may now issue new quality orders to control imports. The approach taken by the government has many problems and will not yield the desired results. So far, no matter how many attempts have been made, there has been no significant reduction in imports.

Determining non-essential imports in a functioning market economy would be difficult for any bureaucracy. This will increase costs and affect the competitiveness of the economy. Adopting this approach also creates scope for lobbying and this will not prove helpful for the economy.