Having hit a record 6.7 per cent of GDP in December quarter, India’s current account deficit is expected to show some improvement in the last quarter of this fiscal on account of likely uptick in exports, Prime Minister’s Economic Advisory Council Chairman C Rangarajan said today.
The current financial year, he hoped, would end with a CAD of little over 5 per cent.
“The CAD (in December quarter) was higher than expected...But I believe CAD will come down during the fourth quarter (January—March). For the year as a whole, I expect CAD to be a little higher than 5 per cent,” Rangarajan told PTI.
CAD widened to a historic high of 6.7 per cent of GDP in December quarter to $32 billion on account of surge in oil and gold imports, besides weak exports. It was at $20 billion (4.4 per cent of GDP) in the corresponding quarter of last fiscal. CAD is the difference between inflow and outflow of foreign funds.
Even at over 5 per cent, the CAD would be nearly double the mark of 3 per cent during 1991 —— the year when India faced the foreign exchange crisis.
Ratings agency Crisil’s chief economist DK Joshi said the higher CAD could weaken the rupee. However, it is expected to come down as a whole, he said.
“The higher CAD increases vulnerability and dependence on foreign inflows. It causes lots of currency volatility which can weaken the rupee. Going ahead, we believe it will come down,” Joshi said.
On whether the current balance of payment (BoP) problem could be equated with the situation faced during 1991, he added,” that was a different problem.”
Crisil in a note said government’s effort to revive the economy should be able to cover the widening CAD in the next fiscal.