The recent turnaround in exports and fall in gold imports led to the Current Account Deficit (CAD) gap narrowing down sharply to $5.2 billion, or 1.2 per cent of GDP in the July-September quarter of 2013-14, prompting an optimistic Finance Minister P Chidambaram to claim that the economy will grow at 5 per cent during the current fiscal despite the stress being faced currently.
The CAD which is the difference between outflow and inflow of foreign exchange, was $21 billion, or 5 per cent of the GDP, in the second quarter of last fiscal.
“Contraction in the trade deficit coupled with a rise in net invisibles receipts resulted in a reduction of the CAD to $26.9 billion (3.1 per cent of GDP) in H1 of 2013-14 from $ 37.9 billion (4.5 per cent of GDP) in H1 of 2012-13,” RBI said in a statement.
Notwithstanding a lower CAD during April-September (H1) of 2013-14, there was a drawdown of foreign exchange reserve to the tune of $10.7 billion as against an accretion of $400 million in same period last fiscal mainly due to a decline in net capital inflows under the financial account, it added.
Both the Government and RBI are expecting the CAD to be below $56 billion in the current fiscal compared to the record high of $88.2 billion, or 4.8 per cent of the GDP last fiscal.
Besides the pick-up in exports the steps taken by the Reserve Bank and the Government have resulted in a sharp decline in gold imports, which was one of the main contributors to high CAD last year.
The Government has taken several steps, including hike in gold import duty to 10 per cent and restrictions on import of gold bars and medallions, to restrict CAD. It has also taken measures to boost exports, taking advantage of depreciating rupee.
Meanwhile Chidambaram said that despite the ongoing period of stress, the economy will grow at 5 per cent in the current fiscal.
“We are going through a period of stress but there is a ground for optimism...We hope things will become better in the second half of the current fiscal,” he said at a press conference.
The Finance Minister based his optimism on several factors including better-than-expected second quarter GDP growth of 4.8 per cent, improvement in CAD position and recovery of exports.
The growth rate in the current fiscal, Chidambaram said, is likely to be 5 per cent.
He further said, “the second quarter GDP growth rate indicates that the economy may be recovering and on a growth trajectory again...Performance of Q2 is broadly on the expected line.”
With the recent improvement in some important sectors like manufacturing, better performance of exports and with the measures taken by the Government the economy can be expected to show further improvement, he said.
Chidambaram also expressed the confidence that the Government will be able to achieve the disinvestment target of Rs 40,000 crore and contain the fiscal deficit within 4.8 per cent of the GDP.
“We are still on target. We are on course for disinvestment. We are still on track to achieve Rs 40,000 crore target,” he said.
The Finance Minister claimed that the Government was on target to contain CAD and despite some concerns expressed, will contain the fiscal deficit at 4.8 per cent.