Chidambaram says CAD to be much lower than initially forecast

Buoyed by better-than-expected Q1 CAD numbers, Finance Minister said he is confident of closing the fiscal with a better set of numbers than initially projected.

Published: 02nd October 2013 06:03 PM  |   Last Updated: 02nd October 2013 06:03 PM   |  A+A-


Buoyed by better-than-expected Q1 current account deficit (CAD) numbers, Finance Minister P Chidambaram said he is confident of closing the fiscal with a better set of numbers than initially projected.

The minister also said economic growth closer to 5.5 per cent should be considered very satisfactory and that there is "still some speculation" in the forex markets.

The CAD for April-June was USD 21.8 billion or 4.9 per cent of GDP. The government's target for the financial year is USD 70 billion or 3.7 per cent of GDP.

"I think we will be comfortably below USD 70 billion. At the moment, I will stick to USD 70 billion. When the second-quarter numbers are announced, then I will give a better number," Chidambaram told reporters on the sidelines of a function to celebrate the platinum jubilee of J&K Bank here late last evening.

Chidambaram said the Q1 CAD was "exaggerated by the very sharp rise in gold imports in April and May." He said the total quantity of gold imported in Q1 was about 345 tonnes.

"In the second quarter, I have seen up to September 25, gold import is only about 63 or 64 tonnes. So there is a sharp compression in gold imports. So if you net out gold imports, we'll find that CAD is a very manageable number." 

The minister reiterated that he will not allow the red lines drawn on CAD and the fiscal deficit to be breached.

"When we draw a red line, we will remain within the red line," Chidambaram said.

The CAD, which is the difference between foreign exchange earned and spent, touched a historic high of 4.8 per cent of GDP in the previous financial year.

Concerns about CAD increased as foreign investors began pulling out of the country after the US Fed hinted at withdrawing its easy money policy earlier than expected.

As a result, the rupee fell and lost close to 30 per cent between April 2 and September 3. Foreign investors pulled out almost USD 13 billion, mostly from debt instruments.

Asked about the trimming of this fiscal year's GDP growth forecasts by analysts, Chidambaram said, "I have never predicted a growth rate. Whenever I have predicted a growth rate, I have simply reported what the RBI has said or the PMEAC (Prime Minister's Economic Advisory Council) has said.

On September 13, the PMEAC lowered the growth forecast for the current fiscal to 5.3 per cent from 6.4 per cent projected previously. The RBI had earlier lowered its growth estimate to 5.5 per cent from 5.7 per cent. GDP grew by 5 per cent in 2012-13.

"I don't set much store by what analysts or broking houses say. They come up with one number in the morning and another in the evening. I think it's fair to say that growth will pick up in the second half. I think anything higher than 5 per cent and anything closer to 5.5 per cent should be considered a very satisfactory movement forward," he said.

Chidambaram exuded confidence that Q2 GDP growth would be better than Q1, when the economy expanded 4.4 per cent.

"Exports are showing robust growth. Credit growth to select industries is showing good growth. For example, credit to two-wheelers sales, small and medium enterprises sector, retail, all that is growing. I think it's too early to call it a victory yet, let us wait for a couple of months. But I am sure that the second half will be better than the first half," Chidambaram said.

On the Fed's tapering of its stimulus programme, the finance minister said, "To assume that the tapering will have no impact on our economy is naive. There will be some impact on us, as there will be an impact on every economy."


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