CAD to improve in fourth quarter: Rangarajan

PMEAC chairman hopes the current financial year will end with a current account deficit of a little over 5%
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First Published: Fri, Mar 29 2013. 11 33 PM IST
C. Rangarajan, chairman, Prime Minister’s Economic Advisory Council. Photo: Ramesh Pathania/Mint
C. Rangarajan, chairman, Prime Minister’s Economic Advisory Council. Photo: Ramesh Pathania/Mint
New Delhi: India’s current account deficit (CAD), which hit a record 6.7% of gross domestic product (GDP) in the December quarter, is expected to show some improvement in the last quarter of this fiscal on account of likely uptick in exports, Prime Minister’s Economic Advisory Council chairman C. Rangarajan said on Friday.
The current financial year, he hoped, would end with a CAD of a little over 5%. “The CAD (in December quarter) was higher than expected...But I believe CAD will come down during the fourth quarter (January-March). For the year as a whole, I expect CAD to be a little higher than 5%,” Rangarajan said.
CAD widened to a historic high of 6.7% of GDP in December quarter to $32 billion on account of a surge in oil and gold imports, besides weak exports. It was at $20 billion (4.4% of GDP) in the corresponding quarter of last fiscal. CAD is the difference between inflow and outflow of foreign funds.
Ratings agency Crisil’s chief economist D.K. Joshi said a higher CAD could weaken the rupee. However, it is expected to come down as a whole, he said. “A higher CAD increases vulnerability and dependence on foreign inflows. It causes lots of currency volatility which can weaken the rupee. Going ahead, we believe it will come down,” Joshi said.
Separately, Japanese financial firm Nomura on Friday said CAD is likely to come down to around 4.5% in the last quarter of the current fiscal. In a research report, Nomura estimated a CAD of 5% for this fiscal and also pegged it at the same level for the next financial year. It said CAD tends to seasonally improve during January-March period. The report, however, added that reducing trade deficit was not an indication of a trend and the deficit would again deteriorate in the first quarter of next fiscal.
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First Published: Fri, Mar 29 2013. 11 33 PM IST
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