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Memories of Another day

Memories of Another day
While my Parents Pulin babu and Basanti devi were living

Friday, March 29, 2013

Centre’s deficit worry deepens

Centre's deficit worry deepens

Mumbai, March 28: The current account deficit (CAD) swelled to 6.7 per cent of the gross domestic product (GDP) during the third quarter of 2012-13, exacerbating the problems of the government which has been struggling to put its fiscal house in order.

CAD — the difference between the inflow and outflow of foreign currency — rose to $32.6 billion for the October-December quarter of 2012-13 from $20.2 billion in the corresponding period of the previous fiscal. Analysts had estimated the deficit to be around 6.4 per cent of GDP.

Meanwhile, the fiscal deficit for the first 11 months of the current financial year touched 97.4 per cent of the revised estimate for 2012-13, data released by the Controller General of Accounts show.

The fiscal deficit was 94.6 per cent of the revised estimate in the same period of the previous fiscal.

In absolute terms, the fiscal deficit, or the gap between expenditure and revenue receipts, stood at Rs 5.07 trillion at the end of February.

The budget had aimed to bring down the fiscal deficit to 5.2 per cent of GDP in 2012-13 against 5.7 per cent in 2011-12.

Over the past few months, rating agencies as well as the Reserve Bank have been warning about rising CAD.

Moody's has said the rise in CAD can increase the country's vulnerability to international financial volatility, while the RBI has said the rising deficit has limited its scope for rate cuts.

RBI data showed CAD was driven by a wider trade gap, the difference between exports and imports.

Trade deficit widened to $59.6 billion during the period from $48.6 billion in the same quarter last year.

According to the central bank, exports did not show any significant growth in the third quarter of 2012-13 compared with a 7.6 per cent rise in the year-ago period even as imports grew 9.4 per cent, spurred by oil and gold.

It was not trade deficit alone that contributed to the scary CAD. Foreign direct investment halved to $2.5 billion during the period; remittances also fell.

The RBI said the surge in capital inflows would help to finance CAD during the quarter. The pick-up in capital flow during the period came mostly on account of FII funds, which rose to $8.6 billion from $1.8 billion in the same period of the previous year.

Experts cautioned that one should not entirely rely on FII flows as they can turn negative on account of an adverse development.

Rupa Rege Nitsure, chief economist at Bank of Baroda, said: "We cannot remain complacent with the fact that it (CAD) is adequately financed. Majority of the finance is in portfolio inflows and external commercial borrowings. FDI inflows have declined.

"While in the short-term, liberalising of capital flows and import duties may help, in the long-run competitiveness of exports has to go up driven by improvement in investment climate. Both the government and the RBI have to work in partnership," she said.

Meanwhile, officials said the fiscal deficit position would improve in March, when traditionally a large chunk of tax receipts came.

"Tax collection trends this month and a little residual expenditure mean that the target of holding the fiscal deficit at 5.2 per cent of GDP will come through," officials in the budget department said.

The country's external debt also rose 8.9 per cent from March last year to $376.3 billion as on December 2012 on account of an increase in both long-term and short-term borrowings.

http://www.telegraphindia.com/1130329/jsp/business/story_16723736.jsp#.UVWdtBeBlA0

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