CAD May Slip Below 1% This Fiscal: Subramanian

CAD May Slip Below 1% This Fiscal: Subramanian

Current Account Deficit may dip below 1 per cent in FY17 owing to low global crude prices, while the Brexit is likely to impact India as the global economy will slow down after Britain's decision to leave the EU, Chief Economic Advisor Arvind Subramanian said today.

"In Economic Survey we had forecast (growth rate of 7-7.5 per cent) and I think broadly we are going to stick to that. As I said there is going to be Brexit and offsetting factors like good monsoons, let's see how it works out. At the moment we are not revising the forecast (of GDP growth).

"CAD will be very manageable. Hopefully it will be within 1 per cent of GDP. Especially with oil prices coming down and that's good," the CEA told reports on the sidelines of a programme here.

CAD is the net difference between outflows and inflows of foreign currencies.

"It (Monsoon) is spreading reasonably well I think. In July we are expecting really good rains. That's when the all the planting happens on the whole hoping for good agricultural karif production with the monsoon," he further said.

He said though the price of gold is surging, it may not have an impact on the overall CAD as the yellow metal imports constitutes less than half of the oil import bill resulting a in net positive affect.

"So if oil prices go down, gold goes up by similar amount. The net will be quite positive and second the gold price effect should unwind itself as well because there is always a broad correlation that when the dollar goes up commodity prices come down," he further said.

Subramanian was in the city to deliver a lecture at CR Rao Advanced Institute of Mathematics, Statistics and Computer Science at University of Hyderabad.

Earlier in an interactive session, he said Brexit may slow down the word economy and it may impact India also.

"It is a landmark development in many ways. It is going to have ripples around the world. People are very anxiously looking at whether in the US election also something similar might happen.

From India's point of view it is significant in economic terms because one thing is the world economy might slow down as result of this which of course then impact India," he said.

He, however, said India is "relatively well cushioned" to dwell any impact of this kind of external events. 

On bad debts, Subramanian said in China the amount of loans that the banks have lend to firms or corporates is 165 per cent of its GDP whereas in India it is only 35 per cent.

"It is not a challenge that cannot be managed. RBI and the government is working together to make sure this does not become a time bomb and also does not impact on the economy," he said.

He said food inflation was much lesser as compared to three years ago and most of the food inflation is concentrated on pulses.

In order to tame food inflation, the government is taking steps to "dramatically" increase pulses production in the country.


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