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  3. Shrinking CAD to help ease inflation, lift rupee: India Inc

Shrinking CAD to help ease inflation, lift rupee: India Inc

04 Dec 2013 Evaluate

Cheerful over the contraction witnessed in current account deficit (CAD) of the country, India Inc has said that narrowing of CAD will help arrest depreciation of the rupee and ease inflation concerns. The CAD, which represents difference between outflows and inflows of foreign exchange, narrowed sharply to $5.2 billion, or 1.2 percent of GDP, in the July-September quarter of this fiscal year.

Assocham President Rana Kapoor has said that CAD is the key determinant of exchange rate and containing it will impact rupee positively and ease the concerns on inflation. The rupee, which hit a record low of 68.85 per dollar on 28 August, staged a dramatic recovery to around 62 per dollar. Meanwhile, Kapoor expressed the need of more measures from government in order to contain inflation and to meet the disinvestment target to address concerns on public finance. The President of the PHD Chamber of Commerce Suman Jyoti Khaitan said that improvement in the external scenario will help stabilise the overall macroeconomic situation of the country like inflation and exchange rate and pave the way to revive growth further and attain its full potential. By adding further, Khaitan said that sharp fall witnessed in CAD is mainly attributed to the decisive measures taken by the government and the RBI, which also demonstrates the fact that India can contain the deficit whenever it wants.

The sharp contraction in CAD was mainly on the back of decline in gold imports and turnaround in exports. Gold and silver imports in April-October period of 2013 declined by 12.86 percent to $24 billion compared to $28 billion in the same period last year.  On the other hand, value of exports increased by 6.32% to $179.38 billion during April-October, 2013 as against $168.71 billion in the corresponding period of last year. Recently, the government has hiked gold imports rate to 15% and the RBI introduced 80/20 rule under which 20% of all gold imports by importers has to be re-exported. On exports front, the government has announced several export-boosting measures like sops for exports orientated Special Economic Zones (SEZs).

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