Financing high CAD a challenge: Chidambaram

Says financing CAD year after year is a challenge and the only way to deal with the problem is by increasing exports

Export figures in the first quarter were “not encouraging”, Finance Minister P Chidambaram disclosed on Monday, adding measures were being taken to reverse the trend.  

After reviewing the export figures with  Commerce Minister Anand Sharma, Chidambaram said, “I am sure some measures will be taken to reverse this trend (declining exports) and our exports will be back on a moderate growth path so that trade balance does not expand.”

He said  financing current account deficit (CAD) year after year is a challenge and the only way to deal with the problem is by increasing exports.

“The more difficult task is to finance the CAD. It was not even in the vocabulary of discourse until a few years ago. It has become a serious issue now because imports are rising faster than exports. And, the gap has to be financed through invisibles and capital account. But to do that year after year is a challenge. The long-term answer to CAD is to improve exports,” he told the media in an interview. Chidambaram, who met Commerce Minister Anand Sharma earlier in the day, said: “We have reviewed the (export) figure this morning. First quarter figures are not encouraging.”

CAD, which occurs when total imports of goods, services and transfers is greater than exports, had hit a record high of 4.8 per cent of the gross domestic product (GDP) in 2012-13, as rising oil and gold import widened the trade gap to $195.7 billion.

“I am sure measures would be taken to reverse this trend (declining exports). Our exports would be back on a moderate growth path so that trade balance does not expand,” he said.  

Chidambaram said the government had financed the CAD through foreign inflows last year and also added $3.8 billion to the foreign exchange reserves. The government has been taking steps to encourage overseas investment and is in the process of relaxing FDI cap in various sectors.

A high CAD is putting pressure on the rupee, which had touched a record low of 60.76 to a dollar amid outflow of foreign funds from debt securities.