Focus on exports necessary, says RBI

RBI’s deputy governor concerned about current account deficit.

Calling the widening current account deficit a “major concern”, the Reserve Bank of India’s Deputy Governor, H R Khan today asked for a focus to drive up exports.

India is among the countries having a current account deficit (CAD). It is an area of concern, he said, addressing a late night award function of Engineering Export Promotion Council here.

Being a country where balance of payments is under stress, India has to promote exports to see this does not go out of hand, he added.

The country’s CAD hit 3.1 per cent of gross domestic product (GDP) mark at the end of the first quarter ended June. The Prime Ministers’ Economic Advisory Council has pegged CAD at 2.7 per cent for this financial year. Last year, it was 2.6 per cent of the GDP. It rose to $14.5 billion from $12 billion in the same quarter of 2010-11, due to an increase in trade deficit and continued net outflow on investment income.

RBI, in its macroeconomic and monetary development report, said the country’s external situation was expected to remain manageable. But overall the balance of payments outlook for 2011-12, although stable, warrants close monitoring, RBI said.

Khan also termed the $300 billion foreign exchange reserves as “borrowed money” kept for times of “extreme distress”. Improving the exports, he added, would allow a greater flexibility to imports as well, which would in turn give access to the best of goods and services. Units have flexibility to import quality material, machinery and things which would smoothen bottlenecks in the system. This has implications for the entire economy, he noted.