Current account deficit (CAD) at 2.5 per cent of GDP won't be a worry as the government has the required instruments to deal with any imbalance created due to foreign fund outflow, Economic Affairs Secretary Subhash Chandra Garg said today.
"2-2.5 per cent CAD is not a problem for us.... If there is stability, in the current year capital account (inflows) should be good enough to take care and we may not worry even if it (CAD) reaches 2.5 per cent," Garg said.
CAD, which is the difference between the inflow and outflow of foreign exchange, jumped to USD 48.7 billion, or 1.9 per cent of GDP, in 2017-18 fiscal. This was higher than USD 14.4 billion, or 0.6 per cent, CAD in 2016-17 fiscal.
With rising oil prices, depreciating rupee and outflow of portfolio investments, there are concerns that CAD might rise in the current fiscal.
"Last year, we had USD 160 billion of trade deficit, USD 82 billion services surplus and USD 70 billion remittances. In a way, we are pretty much in balance.
"But if oil goes up, this balance gets disturbed and the capital account funds it," Garg said at a CII event here.
More From This Section
The price of Indian basket of crude surged from USD 66 a barrel in April to around USD 74 a barrel at present.
Asked about monetary policy tightening by the United States, he said India can afford to be "less edgy and concerned" than it was during Taper Tantrum in 2013.
"In the last couple of years of monetary easing, you did not see flood of capital flows coming into emerging markets, including India. Unlike what happened in 2007. There is a confidence that the emerging market economies will do well," he said.
He added the government needs to be "very careful and watch out" for the situation, but today "we are at a place where we can manage without having the consequences of what we saw in Taper Tantrum."