NEW DELHI: With economists saying that India's current account deficit might be as high as 2.5 per cent of GDP this fiscal year, economic affairs secretary Subhash Chandra Garg said on Tuesday that this is not a problem because India is better prepared to deal with it, unlike a few years ago.
"If there is stability, in the current year capital account (inflows) should be good enough to take care and we may not worry even if it (CAD) reaches 2.5 per cent," Garg said at a conference here. India's CAD has begun widening over the last three years, from 0.6 per cent in 2016-17 to 1.9 per cent in 2017-18.
With crude oil prices ruling significantly higher that a year ago, a depreciating rupee and a steady outflow of portfolio investments, there are concerns that CAD might rise to 2.4-2.5 per cent during the current fiscal. Garg also pointed out that there was not much threat from the US Fed's monetary policy tightening unlike the 'taper tantrum' days of 2013.
While he said the government will need to be watchful, he said India is now at a place where it has tools to deal with it. "We have a number of other instruments to use in that case. We have not called upon them to use so far. Last time we came out with NRE (non-resident external) deposit.
We are sitting on reserves which are highest ever at USD 415 billion. The place where we are not is not where we were in 2013," he said. Garg also pointed out that while whether CAD reaches 2.5 to 3 per cent would depend on oil prices, India is in "a place where we can take care these things, unlike 10 years ago when we didn't have firepower. I think on macro front we need to be vigilant, but we can take care."