CAD to come down below 3 p.c. this fiscal: PMEAC

Current Account Deficit (CAD) is likely to come down below 3 per cent of gross domestic product (GDP) in the current fiscal on the back of measures taken by government, Prime Minister’s Economic Advisory Council (PMEAC) Chairman C. Rangarajan said on Friday.

He exuded confidence that the Indian economy will grow at 5.3 per cent in 2013-14.

“In the light of steps that have been taken the CAD will certainly come down below 3 per cent of the GDP in the current year and it will not be difficult to finance this level of CAD,” he said at the India Economic Conclave organised by ET Now.

The CAD, which is the difference between inflow and outflow of foreign exchange, touched a record high of $88.2 billion or 4.8 per cent of GDP in 2012-13 on account of higher gold and oil import.

The government has taken several steps, including hike in gold import duty to 10 per cent and restrictions on import of gold bars and medallions, to restrict CAD. It has also taken measures to boost exports, taking advantage of depreciating rupee.

It hopes that CAD will come down substantially to $56 billion or less.

“Going over the medium term we should contain the CAD somewhere around 2.5 percent of GDP and that will enable us to get capital flows in the normal fashion and that will not put the pressure on the rupee,” Mr. Rangarajan said.

A high CAD puts pressure on the rupee, which had touched a low of 68.85 to a dollar in August.

Noting that the Indian economy is passing through phase of low growth, Mr. Rangarajan said the GDP growth in 2013-14 will be a shade better than last year’s growth of 5 per cent.

“The pick up in the economy will be seen in the second half of the year and I think the growth rate of the economy will be close to 5.3 percent,” he said.

The Indian economy grew at 4.4 per cent in first quarter.

The data for second quarter growth is scheduled to be out later in the day.

Mr. Rangarajan said the country can grow at 7-7.5 per cent even at the current investment rate of around 30 per cent provided projects are completed expeditiously.

“To achieve the potential of 8-9 percent, there are certain issues that need to be addressed. We need to have stability in taming inflation, containing CAD and (achieve) fiscal consolidation,” he said.