India's Current Account Deficit (CAD) is expected to be around two per cent of GDP during the current fiscal on the back of slackening imports and increased shipments, Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan has said.
"Several things have happened. Exports have picked up. Imports have come down not only in relation to gold but also in relation to oil. The CAD would certainly come down below two per cent or around two per cent of the GDP," Rangarajan told in Hyderabad during a recent visit.
Finance Minister P Chidambaram had said while tabling the interim budget that CAD will be contained at USD 45 billion this financial year, well below the USD 88 billion level in FY'13. In the first half (April-September) of 2013-14, CAD narrowed to USD 26.9 billion (3.1 per cent of GDP) from USD 37.9 billion (4.5 per cent) in the same period last fiscal.
Both the government and the Reserve Bank of India had taken steps to bring down gold imports, one of the major causes for the widening of the CAD in 2012-13. "Certainly, the restrictions imposed on gold have helped in containing the import of gold. Therefore, any further changes in policy would depend up on the stability of Balance of Payments," Rangarajan, a former RBI Governor, said.
He said RBI would have "greater room to operate" vis- -vis deciding on interest rates if the current declining trend in inflation persists. "Containing inflation is one of the important objectives of monetary policy (of RBI). In pursuit of that, they have been following a policy.
Therefore, they will take into account the behaviour of inflation and act accordingly. But inflation has shown a declining trend. If this trend persists RBI has greater room to operate," he said. Rangarajan said the low growth period is over and one can expect better growth in the second half of the year.
"Even though the overall growth rate is fixed at 4.9 per cent a year, the second half growth rate will be in the range of 5.2 per cent. Therefore, the pickup in growth is already seen and there will be further growth next fiscal," he said.