The current account deficit in 2012-13 is likely to remain at the same level like previous year, which was 4.2 per cent of the gross domestic product (GDP), said C Rangarajan, Chairman of Economic Advisory Council to the Prime Minister.
The current account deficit has widened to 5.4 per cent of GDP in the second quarter of current financial year.
“It is a very high level of current account deficit. So far, we have had no problems in financing the current account deficit. The capital inflows are either though FDI or FII or ECB or NRI deposits have been adequate to cover the current account deficit,” Rangarajan told media persons.
He said that because of the slowdown globally, global crude oil prices were expected to come down. “But it didn’t happen. It didn’t increase but remained at a high level. If you exclude oil and gold, the imports are not very disturbing. Certainly gold imports have shown a rise. It was coming down but once again it has shown a rise.”
The current account deficit as revealed for the second quarter is very high. But, we need not project linearly as far as current account deficit for the whole year is concerned, he added.
Import duty on gold likely
The Chairman indicated that increasing the import duty on gold may offer some respite. “What is really becoming disturbing is that gold is also been treated as an asset. I would think that one factor that would lead to reduction in gold import will be of regulatory to control. One approach is to look at the import duty on gold,” he said.
Rangarajan explained that the idea is to discourage the use of gold. “To some extent it may help. It should be done in a manner that we lose both ways – losing revenue as well as gold getting expensive.”
On exports
Rangarajan expects the performance of exports would be much better in the second half than the previous year.
One factor needs to be taken in account – the export growth was negative during the first half of the year. But this came against a 40 per cent increase in exports in the previous year’s first half. The export growth fell substantially in the second half of last year, he said.
When asked if he is bullish about export in the third and fourth quarter of the current fiscal, Rangarajan said, “I am not bullish. Performance would be better in fourth quarter. I am not sure about third quarter as trade deficit in first two months were not too good.”
Rupee movement
Talking on the movement of Rupee, Rangarajan said that when there is mismatch between capital flows and current account deficit, it shows pressure on the Rupee. “As a year, capital inflow would be adequate to cover the current account deficit. And therefore I do not expect the rupee to change much. But capital inflows are not always stable.”