Mumbai: A day after flagging concerns over government finances, the Reserve Bank on Wednesday said the current account deficit will improve this fiscal from the record low of 4.2 percent last year, as numbers for the first three months are indicating an improvement.
"It is possible that this year the CAD might be lower than it was last year," Reserve Bank (RBI) Governor Duvvuri Subbarao told analysts on a post-policy conference call.
The Governor said numbers available for the first quarter show that the non-oil trade deficit has improved, which hints at an improvement in the CAD situation.
"We need to bring it down, the challenge is to bring the CAD down in the medium- and short-term to be able to finance the CAD with relatively stable inflows," he told the analysts.
It should be noted that the widening of the CAD -- the difference between total imports & transfers and export and outward transfers -- has led to a slew of problems, including deterioration in the currency as the inflows dwindled.
In the first quarter policy statement yesterday, he had said one of the reasons for not reducing interest rates was the high fiscal deficit and CAD coupled with drought-driven risks on inflation and further slowdown in GDP growth.
While fiscal deficit touched a record 5.9 percent in FY12 against a target of 4.6 percent, CAD hit a 30-year low of 4.2 percent in FY12, and 4.5 percent of GDP in the last quarter of the fiscal. The CAD was only 2.7 percent of GDP in FY11.