Rangarajan: Current account deficit to come down to 3.5%
Lower gold imports, better capital inflows, stable oil prices will help lower deficit, he claims
India’s current account deficit should come down to around 3.5 per cent of the gross domestic product (GDP) by the end of this financial year, said C Rangarajan , Chairman of the Prime Minister’s Economic Advisory Council here today.
Factors like lower gold imports, better capital inflows and no major increase in oil prices would help lower the current account deficit, he said.
In 2011-12, India’s current account deficit rose to 4.2 per cent of the GDP , mainly on account of higher gold imports and less capital inflows. Gold import in 2011-12 rose to $62 billion, as compared to$43 billion in the previous year.
“This year the current account deficit will come down to 3.5 per cent of the GDP. Over the medium term, efforts are being made to keep the current account deficit around the manageable level of 2.5 per cent of the GDP. Also, I don’t’ think rupee will depreciate much. It will remain the same as it is,” he said at an interactive session at the Merchants’ Chamber of Commerce here today.
Also, the manufacturing sector was expected to rebound in the second half of the fiscal, he said. The growth rate in industrial production contracted by 0.4 per cent in September, primarily due to slowdown in the manufacturing sector.
“We can see an improved performance for the manufacturing sector in the second half of the year. Some recent decisions relating to FDI as well as pricing of petroleum products should help change the investment sentiment. One the whole, the growth in the current year may stay between 5.5 and 6 per cent,” said Rangarajan.
The government will use all policy instrument, including managing food grain market and fiscal and monetary measures to tame inflation, he said.
“We must use all our policy instruments-intervention in the foodgrains market, monetary policy and fiscal policy—to bring down current inflation and re-anchor inflationary expectations to the 5 per cent comfort zone,” he said.
Inflation, as measured by the Wholesale Price Index (WPI), was 7.81 per cent in September. In October last year, it stood at a high of 9.87 per cent.
Providing food subsidy was of 'paramount' importance for countries like India, but tough policy actions were needed to prune inflation in other fronts, he said.
“The fact that inflation is triggered primarily by supply side shocks does not mean that monetary policy and fiscal policy have no role to play. Food price inflation, if it persists long enough, gets generalized. While efforts are made to raise the revenue-GDP ratio, there is a imperative need to contain expenditures, more particularly subsidies, which need to be pruned, well focused and prioritized. This calls for policy actions, which may not be popular,” said Rangarajan.
"The target of the government as a part of fiscal consolidation exercise is to bring down subsidies as a percentage of GDP. But providing complete food subsidy is of paramount importance for countries like India," he said.
This apart, the government was looking at the General Anti Avoidance Rules (GAAR) provisions to alley investors’ apprehensions surrounding it.
“GAAR was a part of direct tax code. The idea was to give clarity regarding taxation, but somehow it became a cause of fear. We will address the issue and we need to be clear about it,” he said.
“This year the current account deficit will come down to 3.5 per cent of the GDP. Over the medium term, efforts are being made to keep the current account deficit around the manageable level of 2.5 per cent of the GDP. Also, I don’t’ think rupee will depreciate much. It will remain the same as it is,” he said at an interactive session at the Merchants’ Chamber of Commerce here today.
Also, the manufacturing sector was expected to rebound in the second half of the fiscal, he said. The growth rate in industrial production contracted by 0.4 per cent in September, primarily due to slowdown in the manufacturing sector.
“We can see an improved performance for the manufacturing sector in the second half of the year. Some recent decisions relating to FDI as well as pricing of petroleum products should help change the investment sentiment. One the whole, the growth in the current year may stay between 5.5 and 6 per cent,” said Rangarajan.
The government will use all policy instrument, including managing food grain market and fiscal and monetary measures to tame inflation, he said.
“We must use all our policy instruments-intervention in the foodgrains market, monetary policy and fiscal policy—to bring down current inflation and re-anchor inflationary expectations to the 5 per cent comfort zone,” he said.
Inflation, as measured by the Wholesale Price Index (WPI), was 7.81 per cent in September. In October last year, it stood at a high of 9.87 per cent.
Providing food subsidy was of 'paramount' importance for countries like India, but tough policy actions were needed to prune inflation in other fronts, he said.
“The fact that inflation is triggered primarily by supply side shocks does not mean that monetary policy and fiscal policy have no role to play. Food price inflation, if it persists long enough, gets generalized. While efforts are made to raise the revenue-GDP ratio, there is a imperative need to contain expenditures, more particularly subsidies, which need to be pruned, well focused and prioritized. This calls for policy actions, which may not be popular,” said Rangarajan.
"The target of the government as a part of fiscal consolidation exercise is to bring down subsidies as a percentage of GDP. But providing complete food subsidy is of paramount importance for countries like India," he said.
This apart, the government was looking at the General Anti Avoidance Rules (GAAR) provisions to alley investors’ apprehensions surrounding it.
“GAAR was a part of direct tax code. The idea was to give clarity regarding taxation, but somehow it became a cause of fear. We will address the issue and we need to be clear about it,” he said.
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