Amid concerns over rising global commodity prices, containing the widening current account deficit (CAD) and its financing were the major risks for the country’s external sector, RBI said in its quarterly policy statement. The prices might gain further momentum in the event of a faster-than-expected global recovery, said RBI.
It expects capital account deficit for financial year 2010-11 at 3.5 per cent of the GDP, which it termed “not sustainable”. It called for policy action to diversify exports and contain the deficit within prudent limits.
“A CAD of this magnitude (3.5 per cent) is not sustainable. Further, commodity prices, which rose sharply even when the global recovery was sluggish, may rise further if the recovery is faster than expected. This has implications for CAD and inflation. There is, therefore, a need for concerted policy efforts to diversify exports and contain CAD within prudent limits,” it said.
