The Prime Minister's Economic Advisory Council on Tuesday said it expected gold imports to come down this financial year, which could reduce the current account deficit (CAD) to 3.5 per cent of gross domestic product (GDP).
"We do expect CAD in the current year, that is 2012-13, to come down to something like 3.5 per cent from the high level of 4.2 per cent of GDP last year," PMEAC Chairman C Rangarajan said on Tuesday.
India's CAD had touched a record high of 4.2 per cent of GDP in 2011-12, on the back of a wider trade gap and lower capital inflows. Rangarajan said he expected gold and coal imports to decline this year. Adding, capital flows should be encouraged into the country in the short term.
"I believe gold imports will come down this year... I think as inflation comes down and as the attraction for gold becomes less, we should be able to import less gold. Also, if you increase the domestic production of coal, then its import, which we are doing on a large scale, will also come down," he said.
In 2011-12, gold imports stood at $60 billion and the quantum of import was 1,067 tonnes. In the April-June quarter of the current year, however, imports had contracted by 18.4 per cent year-on-year to Rs 71,912 crore ($13 billion).
Besides, according to a draft paper on energy by the Planning Commission, coal imports are likely to touch a whopping 185 million tonnes (mt) by 2017, almost 20 per cent of the international dry-fuel trade amid widening demand- supply deficit.
Rangarajan said, "We should encourage capital inflows so that financing of the current account deficit does not become difficult."
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On the high rate of price rise, Rangarajan said the inflationary expectations would decline because of the improving rainfall.
"By mid September, we know that monsoon is not as bad. Therefore, I expect inflationary expectations to come down in the coming weeks and months," he said.
The wholesale prices-based inflation in August stood at 7.55 per cent, up from 6.87 per cent in July. Retail inflation, on the other hand, was up 10.03 per cent during the month, from 9.86 per cent in July. However, he said with the recent diesel price rise could stoke inflation in the short-term.
The government last week raised diesel prices by Rs 5 a litre, which economists said could have a bearing of up to one per cent on inflation.
"What Reserve Bank of India will look at, in my view, is the behaviour of inflation exclude the direct impact of the increase in diesel prices and see whether there is a momentum towards lower inflation. It is on that basis that monetary policy will be determined," he said. Rangarajan also said the committee on sugar decontrol will submit their report in the next 7-10 days.