C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, has said the country needs to bring down its current account deficit (CAD) to around 2.5 per cent of gross domestic product, besides containing inflation, if it were to achieve and sustain higher growth.
“In the first half of this financial year, our current account deficit had touched a high of 3.7 per cent. With capital inflows of over $50 billion, this did not create a problem. However, we cannot continue to have such high CAD and strive to sustain nine per cent growth. We should bring down our CAD to 2.5 per cent or less in the next financial year,” Rangarajan said at the Maharashtra economic summit last night here.
The unexpectedly high increase in merchandise exports could do a lot to bring down trade deficit, he said.
“Had the services sector’s exports kept pace with the merchandise shipments, trade deficit and the overall CAD would have been much lower. But, I am hopeful the financial year will end with a CAD of under three per cent. So, to bring CAD down to a comfortable level of 2.5 per cent next year, we need to improve our export segment, besides bringing down imports,” he said.
Echoing the finance minister, who, on Friday told Parliament that even the prevailing food inflation (9.5 per cent) was not acceptable, he said the current levels of price run-ons were above the comfort level of the government, as well as the Reserve Bank of India (RBI).
“Even though prices have been declining for some time now, taming inflation should continue to be RBI and the finance ministry’s top priority,” he said.
However, he was quick to express optimism that the wholesale price index-based inflation for March would be at seven per cent.
Even when inflation was 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 had key roles to play, he argued.
The former RBI governor also said he did not subscribe to the fast-gaining expert view that higher inflation was a corollary to high growth rates.
