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High CAD 'extremely disappointing': Industry

Last Updated: Thursday, March 28, 2013 - 22:04

New Delhi: Expressing concerns over record current account deficit in October-December, industry on Wednesday said the government must step up efforts to boost exports in the upcoming foreign trade policy and review existing free trade agreements (FTAs).

"The performance of the country on external trade and investment front during October-December quarter is extremely disappointing. Current account deficit reaching to 6.7 percent level is untenable," Assocham President Rajkumar Dhoot said.

The possible way out from this situation is to make a realistic assessment of strengths and weaknesses of the economy before entering into the FTAs. The existing FTAs need to be reviewed keeping the ground realities in mind, Dhoot said.

Echoing similar sentiments, FICCI President Naina Lal Kidwai said: "That the CAD as a proportion of GDP has reached 6.7 percent in October-December 2012 exceeding the earlier high of 5.4 percent in Q2 of the current fiscal year is a matter of concern and a potential macro-economic risk."

However, striking an optimistic note, Ficci said: "Provided the external economic environment continues to improve and our government significantly steps up its efforts to support exports in the forthcoming foreign trade policy, India's exports could make a much stronger recovery in the months ahead."

Highlighting that India's rising CAD was a reflection of its external sector vulnerabilities with the balance of payments coming under increasing pressure, Kidwai said there was scope for improvement in the CAD in the present quarter on account of recovery in merchandise exports.

"While a deficit of this magnitude cannot be sustained, we hope to see some improvement in the present quarter and next, as there are signs of recovery in merchandise exports and the country's trade deficit has fallen to a 10-month low in February," she said.

The CAD, which is the difference between inflows and outflows of foreign currency of a country, "widened from 5.4 percent in Q2 (July-September) to a record high of 6.7 percent of GDP in Q3, driven mainly by large trade deficit", as per data released by RBI.

The rising CAD that has recorded over 61 percent rise in Q3 of 2012-13 over the corresponding quarter of the previous year, results from a widening of trade deficit, deceleration in growth of net service receipts and a decline in net income flows.

During April-December 2012, CAD stood at USD 71.7 billion accounting for 5.4 percent of GDP as against USD 56.5 billion (4.1 percent of GDP) in the same period of 2011.

The government has already imposed curbs on import of gold by increasing duty with a view to contain ballooning CAD. Besides, it has taken steps to improve availability of gold.


First Published: Thursday, March 28, 2013 - 22:04
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