CAD could exceed 4.2% in current fiscal: Rangarajan

Tags: News
Amid widening trade gap, the Current Account Deficit (CAD) this year is likely to exceed 4.2 per cent of GDP recorded in 2011-12, said Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan said.

"The CAD will be higher than last year's level. We expect the third quarter figures will also be high, but it could come down in fourth quarter," Rangarajan said.

CAD, which represents the difference between inflows and outflows of foreign currency, had touched a record high of 5.4 per cent of GDP in the July-September quarter.

The trade deficit in January widened to USD 20 billion in January, the second highest rise ever in a month. The biggest trade gap of USD 21 billion was recorded in October, 2012.

High import of gold is adding to the CAD despite efforts by the government to check import of the precious metal. Gold accounts for second largest import in value terms after oil.

The Reserve Bank too has expressed concerns over high import of gold and a committee appointed by it had suggested government impose limits on gold import by banks and other institutions, which account for 56 per cent of the total gold import.

Gold imports in the April-December period stood at USD 38 billion. In 2011-12 fiscal it was USD 56.5 billion.

A high CAD, the RBI had said, will threaten macroeconomic stability and impact growth.

"Large fiscal deficits will accentuate the CAD risk, further crowd out private investment and stunt growth impulses," RBI had said in its third quarter policy review.

Battling a high CAD, the Centre is trying to attract more foreign funds into the country and has also hiked import duty on gold to check outflow of funds.

The RBI's professional forecasters survey projected CAD to be at 4.2 per cent of GDP in the current fiscal as well.

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