More steps will be taken to bring down CAD: Raghuram Rajan

Interview with Chief Economic Advisor

The current account deficit for third quarter (October-December) of 2012-13 beat all expectations and stood higher at 6.7% of GDP than 5.4% in the previous quarter. The finance ministry expects CAD for the fourth quarter to be smaller. Chief Economic Advisor Raghuram Rajan tells Vrishti Beniwal, the Q3 number indeed is large, but the government could see it coming. He adds the government would take more steps to address the issue. Excerpts:

The Finance Ministry statement today said CAD of 6.7% “is not surprising”. Why do you think that a figure as high as 6.7% is not astonishing?

We have been tracking CAD for some time now. You can see Finance Minister (P Chidambaram) has been making noises about CAD. I have been talking about it. It is obviously larger than what we would like it to be. However, we have not drawn upon our foreign exchange reserves. The latest news on exports and stable imports suggest progress. So we are not underplaying it.

Where do you see CAD settling down at the end of this financial year?

It depends on exports, sentiment of people towards gold and oil prices. Undoubtedly, we want to bring it down from where it is (in the quarter ended of December 31, 2012). It has to be brought down to 3% over a period of time. Lower gold imports and higher exports would help.

What is the timeframe you have in mind for lowering it to 3% of the GDP?

You can give a target but can’t give a timeline. We are trying to make sure that bulk of the financing is from FDI and FIIs. We are not relying on short-term inflows. If the United States and some other countries start growing more strongly it would definitely help. As inflation comes under control and growth improves that would also have an impact on CAD.

Do you think steps taken by the government so far to bring down CAD will show results or more needs to be done address the issue?

Additional steps will be taken. But it also depends on the external environment. It’s not just about export incentives. Fixing issues in some of the stalled projects, coal linkages, it’s a combination of things. Some we have already done; some more we will do to bring down CAD.