CAD may remain where it was last year, says Rangarajan

Former PMEAC chairman does not expect any drastic reversal of gold import policy immediately

C Rangarajan, former chairman of the Prime Minister’s Economic Advisory Council, said on Thursday India’s current account deficit (CAD) this year would remain more or less the same as last year, even though the fall in oil prices would benefit the country in reducing the import bills.

“The initial expectation was, because of the fall in oil price, the current account deficit may be even lower than the last year. But because of the pick-up of the gold imports and all that, I expect CAD to be the same as last year... Something like 1.75 per cent of the gross domestic product (GDP),” he said while responding to reporters’ questions on the impact of oil price crash and inflation on India’s economy.

According to him, there won’t be any drastic reversal of the gold import policy by the government immediately.

He said India, a net importer of oil, was set to benefit from the fall in oil prices and it would also have a moderating impact on CAD. The only likely negative impact, according to him, is that Indians working in West Asia might be hit if the oil income comes down in those countries. “But on the whole, the impact on the CAD will be beneficial as a result of fall in oil prices,” said Rangarajan.

On the wholesale price index (WPI)-based inflation falling to zero in November compared with 1.77 per cent in the previous month, the former Reserve Bank of India governor said the price situation had shown a definite improvement and expected a rate cut early next year.

“The latest policy statement has clearly given indications that if the price behaviour is along the trajectory envisaged, there could be easing of policy. Therefore, I expect probably the changes (in policy rates) to come in the early part of next year,” he said.

In underlining the significance of the latest WPI numbers, Rangarajan said the reversal of policy rates could be effected anytime but for the volatility in the foreign exchange markets. “It could be anytime... the only factor that has to be taken into account at the moment is that there’s a great deal of volatility in foreign currency market and, therefore, the timing will also be influenced by what is happening in the foreign exchange matters,” he said.

According to Rangarajan, until the oil prices settle down, there could be some volatility and uncertainty in the markets as the fall in oil prices would adversely affect the major oil producers.

Earlier, addressing an international conference on information systems security held by the Institute for Development & Research in Banking Technology here, Rangarajan said a well-structured cyber crime could be a threat to a nation’s security and economy, much beyond the banking sector.

“In the olden days, to destroy an economy, one of the standard methods adopted by enemy countries was to inject fake currency into the economy... Modern day cyber crimes are even more dangerous. They can destroy the banking systems or the communications systems in the country,” he said while asking the banking industry to take appropriate actions to make our systems safe, adopt appropriate early warning systems and evolve measures to respond quickly to cyber attacks.