RBI raises concern on rising current account deficit

Last Updated: Fri, Dec 07, 2012 21:02 hrs

pA senior Reserve Bank of India official has raised concern on the country&rsquos widening current account deficit CAD saying it is already far above a level sustainable for Indiapp&ldquoThe Reserve Bank&rsquos own research shows the economy can sustain a CAD of about 25 per cent of GDP under a scenario of slower growth&rdquo said Deepak Mohanty executive director RBI in a speech at an event in Bhubaneswar CAD as a proportion of GDP was marginally up to 39 per cent for the first quarter of 2012-13 from 38 per cent for the same quarter in 2011-12 Last week Prime Ministers Economic Advisory Council Chairman C Rangarajan had also said there was a need to bring down the current account deficit to 25 per cent over a period of timeppMohanty says India&rsquos current account remains particularly vulnerable to developments in the trade account &ldquoSince India&rsquos linkage with the world economy in terms of trade and finance is likely to grow it is important that resilience in its trade account is built up mainly by promoting productivity-based export competitiveness and improving the domestic fundamentals that are supportive of least costly non-debt creating flows particularly foreign direct investment FDI&rdquo he saidppThere is a also need to reduce imports and boost merchandise exports to bring the CAD to sustainable levels said Mohanty This is because a slowing global economy and protracted high levels of unemployment in advanced economies make it difficult to boost services exports in the short runppIf the slowdown continues it could also have an adverse impact on inward remittancesppThe ED also says there is a need to reduce the vulnerability from high oil and gold imports &ldquoWhile oil has been a major component of India&rsquos imports the sharp increase in demand for gold has put an additional pressure&rdquo he saidppMohanty felt the current policies on diversifying the export basket both destination and products need to be stepped up &ldquoIndian exporters need to accelerate efforts to move up in the value chain at the global level&rdquo he saidppFinally according to Mohanty given the global uncertainties and volatility in capital flows the resilience of the capital account needs to be enhanced by encouraging FDIp

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