The burgeoning current account deficit (CAD) that had hit a record 6.7% of the GDP in the December quarter, has caught the attention of a Parliamentary panel. The Parliamentary Consultative Committee on Finance on Monday will question the government on the implications of a huge CAD on the economy and the measures to contain it.
The Prime Minister's Economic Advisory Council had projected CAD to be around 5.1% (or $94 billion) of GDP in 2012-13 and had said that it “is in serious need of rectification”. The PMEAC also said that CAD – the difference between foreign currency inflows and outflows – in 2013-14 is likely to be $100 billion or 4.7% of GDP.
The meeting of the Parliamentary panel on Monday coincides with the RBI's meeting on monetary policy, which also will take into account the huge CAD as it takes a decision on whether to cut its key policy rates.
The RBI had earlier said that CAD is much above its comfort level and that the high CAD is the biggest threat to growth as it has a direct implication on the rate of the rupee as well as on inflation.
The government will inform the panel about the measures taken, including the increase in import duty on gold from 6% to 8%. Imports of gold, along with oil, formed a major portion of the trade deficit and also widened the CAD.
In a press conference on Thursday, the finance minister P Chidambaram pointed out that following the action taken by the government and the RBI, the net gold imports, which had averaged $135 million a day in the first 13 business days in May till May 20, had fallen in the subsequent 14 business days when it averaged only $36 million.
In another measure to attract foreign capital and strengthen rupee, the markets regulator on Wednesday hiked the foreign portfolio investment limit in government securities by $5 billion to $30 billion to allow sovereign wealth funds and foreign central banks to invest in the country's debt market.