Rising current account deficit a worry, says FM

Union Finance Minister Pranab Mukherjee today said there were apprehensions over the rise in India’s current account deficit and trade imbalances.

“Our prudential financial management helped us overcome the financial crisis, but we are still not out of the woods. If you look at the external sector, after a gap of 11 months, when exports are showing positive results, I still have apprehensions because the current account deficit has increased. Trade imbalances have also increased due to shortage of exports. Trade imbalance is increasing due to shortage of exports, not in absolute terms but in comparison to imports,” Mukherjee said on the occasion of the foundation stone-laying ceremony of the country’s second financial hub at Jyoti Basu Nagar, on the outskirts of Kolkata, here today.

The financial hub, to come up after Mumbai’s Bandra-Kurla complex, will house a cluster of banks, insurance companies and other financial intermediaries.

In order to bridge the gap, the finance minister said there was a need to look into newer terrains like Asian neighbours, as export destinations rather than Europe, the US or Japan, which together account for 60 per cent of exports.

The finance minister’s statement comes at a time when the Reserve Bank of India has already said it may intervene in the foreign exchange market if the inflows are volatile.

Higher FII (foreign institutional investment) inflows would help bridge India’s widening current account deficit. The finance minister had recently ruled out the need to curb the inflow of FIIs in Washington.

India’s current account deficit rose sharply in the quarter ended June 30 to $13.7 billion, from $4.5 billion a year ago, more than three times the gap in the same period a year ago.

“I do not consider that the situation (need to curb foreign fund flows) has arisen,” the finance minister had said in Washington.

FIIs have pumped a record $21 billion (Rs 96,000 crore) so far this year into Indian stock markets.

The finance minister said there was a need for an “institutional framework” to increased export.