CAD to fall below 3.8% this fiscal, says Montek

Adds stress on rupee to be much less

Current Account Deficit (CAD) is likely to be lower than the projection of 3.8 per cent of the GDP and India will be in a better position to neutralise the impact of the tapering of monetary stimulus by the US Fed, Planning Commission Deputy Chairman Montek Singh Ahluwalia has said.

“The bottom line on CAD is that news is very good. It will be lower than 3.8 per cent,” Ahluwalia said.

During 2012-13, the CAD was at an all-time high of 4.8 per cent of GDP or $88.2 billion. The government proposes to bring it down to $70 billion or 3.8 per cent of the GDP.

Elaborating further, Ahluwalia said, “Taper is delayed. Secondly, the CAD looks good. By the time taper happens, we are going to look in much better shape.. now rupee has come to a much more maintainable position. So the threat on the rupee will be much less as and when the taper happens. So we will be in a better situation (next year).”

Tapering refers to gradual withdrawal of monetary stimulus by the US Federal Reserve. The reversal of the easy money policy by the US is expected to impact the global markets as well as the economy.

Asked about the Planning Commission Member Saumitra Chaudhuri’s projections that CAD will be 2.5 per cent or range between $40-45 billion, Ahluwalia said, “It is not the Planning Commission’s estimate. This is his personal estimates.”

However, supporting Chaudhuri’s estimates, he said, “If you view the growth grooming because of agriculture and (its) impact on non-agriculture demand which is not very import-intensive, then current account deficit may be lower.”

Elaborating further, he said, “The Finance Ministry made this projection (of CAD) six months ago...When the Finance Ministry made its projection, may be, it had a higher assumption of growth. The problem is that growth is low. The imports are affected because of growth.”

During the first quarter (April-June) this fiscal, the Indian economy grew at 4.4 per cent lower than 4.8 per cent in the previous (January-March) quarter. The economy has grown at a decade low rate of 5 per cent last fiscal. The government expects the growth to range between 5 and 5.5 per cent this fiscal.