India Inc asks govt to take steps to narrow down CAD
New Delhi: Expressing serious concerns over the current account deficit touching a record 4.8 percent in 2012-13, India Inc Thursday asked the government to take all policy measures, including boosting exports and foreign exchange inflows to bring down CAD.
"A large current account deficit above the comfort level of 2.5 percent is always matter of deep concern. We have to do everything possible within the policy domain to ensure that foreign exchange inflows go up. Boosting exports is a key part of this policy action," CII Director General Chandrajit Banerjee said.
Efforts should also be made to introduce attractive financial instruments to divert household savings in non-productive assets like gold, he added.
Current Account Deficit (CAD) touched a record high of 4.8 percent of GDP in 2012-13 on rising gold and oil imports. It, however, narrowed down to 3.6 percent of GDP in the January-March quarter.
"The situation demands a complete overhaul of foreign trade and industrial competitiveness strategies adopted so far. Policy makers must also consider cutting import of non-essential items including second hand and re-manufactured goods, especially non-competitive goods from China," Assocham Secretary General D S Rawat said.
Stating that the practice of financing CAD with short term capital inflows and borrowings makes it vulnerable to external shocks, industry leaders said the effect of reduction in CAD in Q4 could help rupee appreciate.
"It (CAD at 3.6 percent) will help the rupee rebound to the level of 57 to 58 per dollar in coming months. India will benefit from this rebound as the actual decline of commodity prices will be felt in coming months," Executive Director at PHDCCI Saurabh Sanyal said.
The moderation in CAD in Q4 was due to non-oil and non-gold imports falling due to slowing economic growth.
The current account gap in the March quarter was USD 18.1 billion, or 3.6 percent of GDP, lower than USD 21.7 billion a year earlier.
During 2012-13, CAD stood at USD 87.8 billion (4.8 percent of GDP) as against USD 78.2 billion (4.2 percent of GDP) during 2011-12.
"The high level of CAD puts pressure on rupee and this is very much evident in the recent months where the rupee is showing a high degree of volatility. In the immediate future all possible measures of financing the deficit have to be explored, however, the objective should be to ensure that CAD is brought under control," Banerjee said.
In the immediate term, exports of merchandise need to get improved market access, exporters should get credit at international rates, Rawat said.
The Finance Ministry, meanwhile, said "the short-term increase or decrease in CAD should not be a cause for either optimism or pessimism".
The RBI said the CAD widened in 2012-13 on account of "burgeoning trade deficit, decline in net invisible earnings due to sharp increase in investment income payments and only a modest rise in net services receipts".
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