India's current account deficit (CAD) was expected to be big in the last quarter of 2012. But not this big. The deficit reached US$ $32.6 bn in the third quarter of the fiscal year, equal to 6.7% of GDP – a record. That's up significantly from 5.4% of GDP in the previous quarter and 4.4% in the same quarter a year earlier. India's inability to revive its manufacturing sector, coupled with the global economic downturn, has led to a steady decline in export of manufactured goods. As long as foreign flows continue towards India, the capital account will aid in offsetting the CAD. Any change in this equation will hit overall balance of payments once again. As the Finance Minister mentioned, India will have to keep looking for US$ $75 bn every year to fund its CAD. Imports remain a structural issue and the decision to raise diesel prices is a much-required, even if late, step in the right direction. On the exports side, a boost to manufactured goods by encouraging investments in India is a must. It would also help in creating jobs. Till then, India will have to live with depending on foreign money to fund its domestic demand.
Monday, April 1, 2013
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment