Gold as a convenient villain
Wider trade trends explain India's current account woes. It is wrong to blame the precious metal for the mess
It is now official—the widening current account deficit (CAD) is a major source of concern for policymakers. In his budget speech, finance minister P. Chidambaram flagged CAD as his “greater worry". Last month, the Reserve Bank India (RBI) governor warned this deficit could reach record levels. Figures available for the first half of the current fiscal year show that CAD indeed increased rapidly. As against 4.2% of gross domestic product (GDP) recorded at the end of the last fiscal, in the second quarter of this year CAD reached 5.4%. There are indications that in fiscal 2012-13, this trend could worsen. The third quarter recorded a 19% increase in CAD over the corresponding period last year, resulting from a combination of a 3% decline in exports and a 6% increase in imports.