Montek calls for strategy to deal with high CAD

New Delhi: Terming the current account deficit at 6.7 percent of GDP in the December quarter as "far too high", Planning Commission Deputy Chairman Montek Singh Ahluwalia Wednesday said the country needs a strategy to deal with the problem.

"I think (CAD) ... Is far too high. We need a strategy that will have a lower CAD next year which I am sure we will get and also a strategy that can finance an elevated CAD for a year or two", he said.

As per the data released by the Reserve Bank, the CAD, which is the difference between inflow and outflow of foreign currency, "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."

Ahluwalia attributed the high CAD to "renewed import of gold which is very often something that people resort to as a hedge against the unexpected changes."

The objective of government policy, he added, is to keep CAD under reasonable control.

The Finance Ministry too had said steps would be taken by the government and the RBI to contain CAD.

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.

PTI