Pitches for improvement in investment climate to attract foreign funds

 The Reserve Bank, on Monday, pitched for improvement in investment climate to attract foreign funds and tide over the widening current account deficit (CAD).

“Prospects for increasing capital inflows depend on both global conditions, particularly a credible resolution of the euro area situation, and an improvement in the domestic investment climate,” RBI said in mid-quarter review of its credit policy.

During 2011-12, it said, the widening CAD, in the face of worsening global economic and financial conditions, exerted downward pressure on the Rupee.
As capital inflows continue to remain muted, the rupee has further depreciated since April, it said.

The rupee has been depreciating against dollar since March. It touched a historic low of 56.38 to a dollar last month.

Indian currency has depreciated over 20 per cent against the US dollar over the past one year.

The Reserve Bank of India  added that the widening CAD, despite the slowdown in growth, is symptomatic of demand-supply imbalances and a pointer to the urgent need to resolve the supply bottlenecks.

CAD increased to 4 per cent of the GDP at the end of December 2011.
CAD occurs when a country’s total imports of goods, services and transfers are greater than the total export of goods, services and transfers.

India’s exports have been affected due to demand slowdown in developed markets especially Euro zone and contracted by about 4.17 per cent in May.