India’s current account deficit — the gap between foreign exchange inflows and outflows that has pushed the rupee to a steep fall this year — will come down in the current fiscal year as the government’s crackdown on gold imports begins to take effect, the deputy chairman of the Planning Commission, Montek Singh Ahulwalia, said on Saturday.
“The CAD for the year as a whole is going to be significantly lower,” Ahulwalia told a news conference ahead of next week’s G-20 leaders’ summit of the world’s top 20 economies in Russia, where currency volatility will be among the key issues to be discussed.
“My expectation is that you will not see CAD improvement till Q2 (July-September) results are available. Gold imports will be sharply curtailed,” Ahulwalia said.
The CAD last year was 4.7% of the GDP. A closing of the gap, aided by lower imports, higher remittances from overseas Indians and better exports could reverse the weakness for the rupee, which government officials say is undervalued.
The current round of depreciation would help exporters at a time when developed economies were turning around, said Ahluwalia.
The plan panel head, who will be the chief aide for Prime Minister Manmohan Singh at the St. Petersburg summit, said there was no question of India needing help from multilateral institutions such as the International Monetary Fund (IMF) because the crisis was not severe.
“It is a categorical number. It is not on the agenda and we don’t need it either,” he said.
A key factor that has caused the rupee to lose about 18% against the US dollar this year has been the low-interest rate policy in the US that has hurt economies like Brazil and India, which are suddenly hit by the impending withdrawal of the easy cash coming in from the US.
Ahluwalia said India expected that “measures should be calibrated to keep other countries in mind” in such monetary policy measures, and India would raise the issue at the summit. On the margins of the summit, leaders of the BRICS group (Brazil, Russia, India, China and South Africa) are expected to discuss measures to strengthen their current account, including currency swap arrangements that would cushion their currencies.
The BRICS nations had last year agreed on a $100 billion (about R650,000 crore) pool of currency swaps that its members could use as a back-up to defend their respective currencies.