SENSEX NIFTY
Feb 15, 2013, 11.23 AM IST | Source: PTI

Subbarao warns of record CAD

Reserve Bank Governor Duvvuri Subbarao today cautioned the country was headed for the highest ever current account deficit this fiscal, after it rose to 5.3 percent of GDP in the second quarter.

D Subbarao

Former Governor, RBI

More about the Expert...

Reserve Bank Governor Duvvuri Subbarao today cautioned the country was headed for the highest ever current account deficit this fiscal, after it rose to 5.3 percent of GDP in the second quarter.

"Last year, CAD was 4.2 percent of GDP, but this year we expect it would be significantly higher than that. It's going to be historically the highest CAD measured as a proportion of GDP," the Governor said, though he refrained from giving any figure.

Also Read: Govt likely to miss FY13 fiscal deficit target: Fitch arm

He also expressed concern over the way the CAD, which is the gap between forex gained and forex spent, is being financed by volatile inflows instead of more foreign direct investments.

Subbarao was addressing the convocation ceremony of the RBI-set up Indira Gandhi Institute of Development Research (IGIDR) here. The trade gap is widening mainly because of higher import of oil and gold.  The third quarter numbers are expected later this week.

Flagging his concerns over CAD, which was the overriding theme of the third quarter monetary policy announced on January 29, Subbarao said these were regarding its level, quality and the way it is being financed.

"We would not worry if the widening CAS is on account of import of capital goods, but here it is high on account of import of oil and gold. "The other concern is the way we are financing it. We are financing our CAD through increasingly volatile flows.

Instead, we should ideally be getting as much of FDI as possible to finance the CAD. On the other hand, what we are getting is a lot of volatile flows to finance it," Subbarao said.

In FY12, after hitting a high CAD of 4.3 percent, which was then a record, CAD had declined to 3.9 percent of GDP, though it was 10 bps above the year ago period.

READ MORE ON  Budget 2013, RBI, Subbarao, CAD, GDP, IGIDR, CAS, FDI

ADS BY GOOGLE

video of the day

See mild mkt pullback; like public sector banks: HDFC Sec

Explore Moneycontrol

Copyright © e-Eighteen.com Ltd. All rights reserved. Reproduction of news articles, photos, videos or any other content in whole or in part in any form or medium without express written permission of moneycontrol.com is prohibited.