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Capital inflows help economy sustain high CAD: Rangarajan

Last Updated: Tuesday, January 29, 2013 - 22:46

New Delhi: Pitching for greater capital inflows, Prime Minister's Economic Advisory Council Chairman C Rangarajan Tuesday said they have helped the economy in dealing with the problem of high current account deficit (CAD).

"It is the capital flow which has enabled us to sustain higher level of deficits... Let us not make a demon out of capital flows. Capital flows have been useful and have contributed to the strenghthening of the economy," he said a function to release a book by Y V Reddy, chairman of 14th Finance Commission.

Rangarajan, however, pointed out that there was a need to distinguish between various types of capital inflows in order to utilise their potential as a detoxifying agent to tackle the menace of high CAD.

The country's CAD touched a record high of 5.4 percent of GDP or USD 22.3 billion in the July-September quarter on account of decelerated growth in net export of services and higher outflows.

Speaking on the occasion, Reddy appreciated academic work done by Rangarajan.

Meanwhile, expressing concern over the rising Current Account Deficit (CAD), the RBI said it would threaten macroeconomic stability and impact growth.

"Large fiscal deficits will accentuate the CAD risk, further crowd out private investment and stunt growth impulses," RBI 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 4.2 percent of GDP in the current fiscal as well.

Declining for the eighth month in row, exports contracted by 1.92 percent in December to USD 24.8 billion, widening the country's trade deficit to USD 17.6 billion for the month.


First Published: Tuesday, January 29, 2013 - 22:46
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