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CAD to be much lower than initially forecast: Chidambaram

Buoyed by better-than-expected Q1 current account deficit (CAD) numbers, Finance Minister P Chidambaram said he is confident of closing the fiscal with a better set of numbers than initially projected.
The minister also said economic growth closer to 5.5 per cent should be considered very satisfactory and that there is ‘still some speculation’ in the forex markets.

The CAD for April-June was $21.8 billion or 4.9 per cent of GDP. The government’s target for the financial year is $70 billion or 3.7 per cent of GDP.

‘I think we will be comfortably below $70 billion. At the moment, I will stick to $70 billion. When the second-quarter numbers are announced, then I will give a better number,’ Chidambaram said

Chidambaram said the Q1 CAD was ‘exaggerated by the very sharp rise in gold imports in April and May.’ He said the total quantity of gold imported in Q1 was about 345 tonnes.

‘In the second quarter, I have seen up to 25 September, gold import is only about 63 or 64 tonnes. So there is a sharp compression in gold imports. So if you net out gold imports, we’ll find that CAD is a very manageable number.’
The minister reiterated that he will not allow the red lines drawn on CAD and the fiscal deficit to be breached.‘When we draw a red line, we will remain within the red line,’ Chidambaram said.

The CAD, which is the difference between foreign exchange earned and spent, touched a historic high of 4.8 per cent of GDP in the previous financial year.

Concerns about CAD increased as foreign investors began pulling out of the country after the US Fed hinted at withdrawing its easy money policy earlier than expected.

As a result, the rupee fell and lost close to 30 per cent between April 2 and September 3. Foreign investors pulled out almost $13 billion, mostly from debt instruments.

Asked about the trimming of this fiscal year’s GDP growth forecasts by analysts, Chidambaram said, ‘I have never predicted a growth rate. Whenever I have predicted a growth rate, I have simply reported what the RBI has said or the PMEAC (Prime Minister’s Economic Advisory Council) has said.’
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