Using Natural Resources

It is important to note that India still has time to work towards insulating itself from the vagaries of global finance causing much weakness in the currency and the current account. To begin with, the government can easily generate $20 billion or one per cent of GDP by allowing higher coal and iron ore production from its large reserves. Our annual coal imports have gone up from roughly $7 billion five years ago to about $18 billion now. 



The increased dollar outflow was largely avoidable because India has among the largest coal reserves in Asia. India could have saved $10 billion simply by producing more domestic coal. The government must, under a specially regulated dispensation, maybe under the Supreme Court’s watch, revive the export of iron ore from Karnataka and Goa where much of the mining has stopped following judicial intervention. Prime Minister Manmohan Singh spoke about making a special plea to the Supreme Court to restart mining and exports from here. This could add another $7 to $8 billion to the foreign exchange reserves. These are simple ideas which do not require “big bang reforms,” as some overzealous economists might suggest.

If some of these resources are produced optimally and gold imports are brought down by about $20 billion, to the levels that existed before 2011, the CAD should be back to the comfort zone of less than three per cent of GDP. The moment CAD comes below three per cent of GDP, the overall sentiment would definitely change for the better.

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