Panel calls for plug on current account deficit

Panel calls for plug on current account deficit

Says its needed to sustain higher growth

Panel calls for plug on current account deficit

 “In the first half of this fiscal our current account deficit (CAD) had hit a high of 3.7 per cent. But with good capital inflows of over US$50 billion, this did not create a problem. But we cannot continue to have such high CAD and strive to sustain 9 per cent growth. We should bring down our CAD to 2.5 per cent or less next fiscal,” Rangarajan said at the Maharashtra Economic Summit here. He further said, the unexpectedly high rise in merchandise exports could do a lot to bring down trade deficit. Had the services exports also kept pace with the merchandise shipments this fiscal, trade deficit and the overall CAD would have been much lower.

Major issues

But I am hopeful this fiscal would end with a CAD under  3 per cent. “So, we need to improve both our export segments very vibrant besides, bring down imports to bring down CAD to a comfortable level of 2.5 per cent for the next year,” he said.

Listing major issues that may impede 9 per cent growth rate, he said high fiscal deficit and high CAD,poor investment and thus productivity of the farm sector, poor infrastructure and recurring wild price rises. Echoing Finance Minister Pranab Mukherjee, he said, the current levels of price run-ons are highly above the comfort level of the government as well as Reserve Bank of India.

“Even though prices are on the declining curve for some time now , RBI’s and finance ministry’s top priory should continue to tame inflation,”  Rangarajan said.

He, however, was quick to express optimism that wholesale price index based inflation numbers for March will be at 7 per cent. He argued that even when inflation is driven by supply side issues, as happened last November-December, both the fiscal as well as monetary tools have key roles to play.