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Capital flows into India are likely to touch $64 billion in the current fiscal, much higher than the $40-billion that the country received in the previous fiscal, Dr C. Rangarajan, Chairman of the Prime Minister's Economic Advisory Council, has said.
Given the expected capital inflows, financing of current account deficit (CAD) will not be a problem, Dr Rangarajan said at the spring meeting of the Institute of International Finance (IIF) here on Wednesday.
The council's Chairman said that the more recent data indicated that CAD may even be closer to 2.5 per cent of gross domestic product (GDP) in the current fiscal. “We think we should move towards a CAD of 2-2.5 per cent of GDP,” he said, pointing out that India's CAD had remained below 2 per cent until 2008-09. India's CAD as a percentage of GDP was 2.8 per cent in 2009-10.
Dr Rangarajan highlighted that the different growth rates at which the Indian economy was moving and the rates at which advanced economies are moving is contributing to higher CAD. “While our import demand is rising because of our higher growth rate, our export demand is not rising to the same extent because of the inadequate growth rate in developed economies,” he said.
He said that PMEAC had earlier estimated CAD of 3 per cent of GDP. “It now appears that CAD would be lower than 3 per cent of GDP. Overall merchandise trade deficit is narrowing, and therefore, we think CAD should be 2.5-3 per cent,” he later told reporters.
On inflation, Dr Rangarajan told the IIF members that the Government does not buy the idea that high growth rate requires high inflation. He said that all available policy instruments would be used to bring down inflation to 7 per cent by March and 5-6 per cent in coming fiscal.
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