India's $13 billion current account deficit is manageable and will be covered by capital inflows, Trade Secretary Rahul Khullar said on Monday, playing down concerns about the worst shortfall in nearly 3 decades.While the current account deficit figure for the current June-August quarter has not yet been made public, the deficit widened to $13 billion in the January-March quarter, the biggest since 1981, compared to $12.2 billion in October-December, official data showed.But Khullar told Reuters in an interview that this did not worry the government as capital inflows will be more than sufficient to finance the deficit.He also pointed to the slight improvement in the balance of payments surplus, which in Jan-March was $2.1 billion compared with a surplus of $1.8 billion in the Oct-Dec quarter, as another factor to ally concerns."I run a huge deficit on the balance of trade on goods and a surplus in my services account, as a result that my current account deficit is manageable. Manageable in that it remains within 1.5 to 2 pct of GDP," Khullar said.Despite the crisis in the euro zone, capital flows have been robust this year with an inflow of $8.5 billion so far.India's current account deficit has been widening since the first quarter of 2009, sparking concern that it will continue to deteriorate, and eventually weigh on the rupee.Despite foreign holdings of Indian equities reaching an all-time high this year and the Reserve Bank of India, the central bank, being the most aggressive rate hiker in Asia, the rupee is near its 2010 lows against the dollar.Analysts say this highlights that India's current account deficit has reached levels that are now a material influence on the currency. The rupee was at 47.09 per dollar on Monday, down from Friday's close of 46.80/81.DEFICIT COULD WIDEN FURTHERKhullar, however, said capital inflows had a stronger effect on the currency than the bulging current account deficit, citing strong economic growth as more reason not to worry about the shortfall or the currency."Exchange rates are not determined by trade flows any more, they are predominantly determined by capital flows," he said.Analysts say the current account deficit could widen to 3 percent of GDP, but said that should not worry investors because of India's strong economic growth, forecast at 8.5 percent this fiscal year."The CAD could widen to 3 percent but I think that's normal for a high-growth economy. Even then, there should not a problem because the outlook on capital flows this year is pretty firm though at the moment things are sluggish," said N. Bhanumurthy, economist with NIPFP, a Delhi based economic think-tank.India's trade deficit marginally improved in June and stood at $10.55 billion, down 6.63 percent from May, data released by the Trade Secretary showed.India's June exports rose an annual 30 percent to $17.75 billion, for the eighth straight month, Khullar said.Imports for June also rose 23 percent to $28.3 billion, he said.For the rupee, the near-term direction is not very clear.It is expected to track the euro and global stock markets, but in the medium to longer term, rate hikes will help the currency gain as interest rate differentials between India and other countries widen.Analysts said any hike in interest rates could open up more arbitrage opportunities for capital inflows into the country, though rupee appreciation will also be a problem and has to be contained to cushion exports.Foreign institutional investors pumped in $8.5 billion in equities and $7.7 billion in debt in 2010.(Reporting by Swati Bhat and Rajesh Kumar Singh; Editing by Miral Fahmy)(For more news on Reuters India, click http://in.reuters.com)News posted by www.newsinfoline.com
Click here to read more news from www.newsinfoline.com
Please follow our blogs
newsinfolinephotogallery
prabugallery
newsinfolinephotogallery1
photogallery1
No comments:
Post a Comment