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 the 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.

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

Gold imports

High import of gold is adding to the CAD despite efforts by the Government to check the 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 that Government impose limits on gold import by banks and other institutions, which account for 56 per cent of the total gold import.

Gold imports during April-December this fiscal stood at $38 billion. In 2011-12 fiscal, it was $56.5 billion.

Macroeconomic stability

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.

Related Topics