<p>A vexing problem for the India’s economy until the end of 2012, the Current Account Deficit (CAD) may resurface once capital goods imports rise upon the economy showing signs of revival. <br /><br /></p>.<p>A pick-up in gold buying ahead of festive season is also expected to contribute to the rise in CAD in coming months if exports do not keep pace with imports. The CAD rose to $7.8 billion in the April-June from 0.2 billion in January-March.<br /><br />“Until now, India’s CAD problem has largely been due to high imports of gold and crude oil but once the economic revival begins, there will be other imports too. Going ahead, we need to be careful of rising CAD,” according to N R Bhanumurthy, Professor at National Institute of Public Finance and Policy.<br /><br />CAD occurs when the total imports of goods and services into the country exceeds total exports. This also implies that a country is borrowing more than it is earning from international trade.<br /><br />To some extent, CAD is a good indicator for a developing country because the hike is mainly due to efforts of industry to borrow more from outside to expand their business activities. In India, however, the reason for high CAD has not been due to expansion of economic activity. CAD has shot up often due to rising demand for gold and crude oil.<br /><br />According to traders, gold imports have once again gone up above 60 tonnes in August, though the official figures for the month are not out yet.<br /><br />Gold imports were only 40 tonnes in July. India remained the largest import of gold till the UPA government took stringent measures in the beginning of 2013 to curb demand. The step helped cap the rising CAD which had swelled to a record high of $88.2 billion or 4.8 per cent of GDP in 2012-13.<br /><br />Bhanumurthy, however, said that the India can afford to run a CAD of about 2.5 per cent of GDP but imports should contribute to investment in the economy and not merely to finance consumption of gold.<br /><br />India’s economy grew 5.7 per cent in the April-June period of this year. With the expansion of the economy, industrial activity is also expected to rise. This, in turn, will give rise to higher imports of capital goods and machinery. </p>
<p>A vexing problem for the India’s economy until the end of 2012, the Current Account Deficit (CAD) may resurface once capital goods imports rise upon the economy showing signs of revival. <br /><br /></p>.<p>A pick-up in gold buying ahead of festive season is also expected to contribute to the rise in CAD in coming months if exports do not keep pace with imports. The CAD rose to $7.8 billion in the April-June from 0.2 billion in January-March.<br /><br />“Until now, India’s CAD problem has largely been due to high imports of gold and crude oil but once the economic revival begins, there will be other imports too. Going ahead, we need to be careful of rising CAD,” according to N R Bhanumurthy, Professor at National Institute of Public Finance and Policy.<br /><br />CAD occurs when the total imports of goods and services into the country exceeds total exports. This also implies that a country is borrowing more than it is earning from international trade.<br /><br />To some extent, CAD is a good indicator for a developing country because the hike is mainly due to efforts of industry to borrow more from outside to expand their business activities. In India, however, the reason for high CAD has not been due to expansion of economic activity. CAD has shot up often due to rising demand for gold and crude oil.<br /><br />According to traders, gold imports have once again gone up above 60 tonnes in August, though the official figures for the month are not out yet.<br /><br />Gold imports were only 40 tonnes in July. India remained the largest import of gold till the UPA government took stringent measures in the beginning of 2013 to curb demand. The step helped cap the rising CAD which had swelled to a record high of $88.2 billion or 4.8 per cent of GDP in 2012-13.<br /><br />Bhanumurthy, however, said that the India can afford to run a CAD of about 2.5 per cent of GDP but imports should contribute to investment in the economy and not merely to finance consumption of gold.<br /><br />India’s economy grew 5.7 per cent in the April-June period of this year. With the expansion of the economy, industrial activity is also expected to rise. This, in turn, will give rise to higher imports of capital goods and machinery. </p>
