CAD to be at 2% of GDP: Rangarajan

With the gold prices not rising, the attraction of gold as an asset is coming down, he said

The country’s current account deficit (CAD) is expected to be around two per cent of the gross domestic product (GDP) as compared with 1.7 per cent in 2013-14, owing to reduction in import of gold and inflation showing some signs of decline, said C Rangarajan, chairman of Economic Advisory Council to the Prime Minister.

“I think the CAD will remain at modest levels. One of the reasons for the sharp increase in the CAD was the extraordinarily large increase in the import of gold. With the gold prices not rising, the attraction of gold as an asset is coming down. Therefore, as we go ahead, we should find the demand for gold falling. And, there are also other factors contributing to the improvement of exports. Hence, I think around two per cent of the GDP is the likely level at which the CAD will settle down,” he said.

Inaugurating the Centre for Economic and Social Studies (CESS)’s MPhil and PhD programmes in development studies for the academic year 2014-15, here on Monday, Rangarajan said the restrictions that had been imposed on import of gold would be relaxed.

“Largely, the duty on gold is not very high when compared to the duty on many other luxury commodities. Therefore, I think the import of gold will come down because of natural factors like inflation coming down and gold prices not rising,” the former Reserve Bank of India governor said.