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India’s current account deficit (CAD) is likely to be around 2% of gross domestic product (GDP) in the coming few years due to slackening of gold imports, among other factors, Prime Minister’s Economic Advisory Council chairman C Rangarajan said on Monday.
“With inflation showing signs of decline and gold prices also not rising, the attraction of gold as an asset is coming down. And as we go ahead we should find the demand for gold falling. There are also other factors contributing to improvement in exports.
“Therefore, I expect the current account deficit to remain around 2% of the GDP over the years,” Rangarajan told reporters here on the sidelines of a programme organised by Centre for Economic and Social Studies.
Finance minister P Chidambaram recently said the CAD, the difference between inflows and outflows of foreign currency, was brought down significantly to $32 billion in 2013-14 as against $88 billion during 2012-13 and fiscal deficit contained within the target in the last fiscal.
The CAD in 2012-13 was at 4.7% of GDP and in 2013-14 it will be only 1.7%, the finance minister had said.
Replying to a query, he said administrative restrictions that were imposed on gold import may be relaxed as the prices of the yellow metal are stabilised.
“I think the restrictions that have been imposed administratively will be relaxed. I think the import of gold will come down because of the natural factors like inflation coming down, and gold prices not rising and the attraction of gold as an asset will come down. That’s what reflects in the reduction of gold import,” he said.
Gold and silver imports contracted by 40% to $33.46 billion in 2013-14, or just 7% of total import bill, against 11% in the earlier fiscal, after the government put in place steps to check their runaway imports.
On the reported likely El Nino effect on the country’s GDP, Rangarajan said “We do not know what the ultimate impact will be. Sometimes these forecasts also will go wrong. So we will have to wait and see”.
An HSBC report recently said inflation in India may remain sticky in the current financial year as a possible El Nino effect on the monsoon is likely to push up food prices.