Prime Minister's Economic Advisory Council Chairman C Rangarajan has said that to achieve and sustain higher growth rate, the country has to bring down its current account deficit to around 2.5%, besides containing inflation.
"In the first half of this fiscal our current account deficit (CAD) had hit a high of 3.7%. But with good capital inflows of over $50 billion, this did not create a problem. But we cannot continue to have such high CAD and strive to sustain 9% growth. We should bring down our CAD to 2.5% or less next fiscal," Rangarajan said at the Maharashtra economic summit last night here.
He further said, the unexpectedly high rise in merchandise exports could do a lot to bring down trade deficit. Had the services exports also kept pace with the merchandise shipments this fiscal, trade deficit and the overall CAD would have been much lower.
But I am hopeful this fiscal would end with a CAD under 3%.
"So, we need to improve both our export segments very vibrant besides, bring down imports to bring down CAD to a comfortable level of 2.5% for the next year," he said.
Listing major issues that may impede 9% growth rate, he said high fiscal deficit and high CAD,poor investment and thus productivity of the farm sector, poor infrastructure and recurring wild price rises.
Echoing the Finance Minister who on Friday had told Parliament that even the latest 9.5% food inflation is not simply acceptable, he said, the current levels of price run-ons are highly above the comfort level of the government as well as Reserve Bank.
"Even though prices are on the declining curve for some time now , the RBI's and the finance ministry's top priory should continue to be taming the inflation," he said.
But he was quick to express optimism that wholesale price index based inflation numbers for March will be at 7%.
However, he also argued that even when inflation is driven by supply side issues, as happened last November-December when the prices of onions and tomatoes were on wild fire, both the fiscal as well as monetary tools have key roles to play.
The former RBI governor also said he does not subscribe to the now fast gaining expert view that higher inflation is a corollary of high growth rates.
