CAD has widened but comfortable: Raghuram Rajan

A sharp rise in gold imports and a fall in export growth pushed India's CAD to 2.1% of GDP

At a time when India's current account deficit (CAD) has widened to $10.1 billion in the quarter ended September 2014, Reserve Bank of India Governor, Raghuram Rajan, allayed concerns saying, the central bank is still comfortable with the CAD at 2.1% of gross domestic product (GDP).

"Current account deficit has certainly widened. But still 2.1% is comfortable. The direction is something that we will be watching closely,” Rajan said at a news conference after the central bank's board meeting here.

“There are risks to the current account, there are risks to everything. At this point, we are certainly vigilant, but I won't say, we are apprehensive," he added.

A sharp rise in gold imports and a fall in export growth pushed India's current account deficit (CAD) to $10.1 billion (2.1% of gross domestic product) in the financial year's second quarter, ending September, compared to $5.2 bn (1.2% of GDP) for July-September 2013. The deficit was $7.8 bn (1.7% of GDP) in the first quarter ended June, according to Reserve Bank of India (RBI) data.

“Gold imports have increased. The question is whether after liberalisation, imports will increase substantially more, or will they be near the actual demand in the economy,” he said.

According to Rajan, the falling oil price is a a cushion on CAD and it is about time to experiment by taking off the restrictions on gold imports.

“How long can we rely on that (falling oil prices) is a matter of uncertainty. But I'm also hopeful that people will turn towards investing in either deposits or bonds or even in the stock market as opposed to substantial use of gold as an investment,” he noted.