Finance Minister Arun Jaitley told the Rajya Sabha on Tuesday that the rise in the current account deficit was not a cause for concern because of the comfortable foreign exchange reserve position. Mr. Jaitley said the government would consider tightening measures only in extreme cases, as over-regulation of gold imports could push the yellow metal into the grey market. The current account deficit (CAD) in second quarter of this financial year increased on account of the higher trade deficit contributed by the deceleration in export growth and increase in imports.
“...since the foreign exchange reserve position in the country is reasonably comfortable, and the balance of payments is also broadly under control, I don’t think there is any reason for concern, or, to take the kind of steps which we had to take in 2013 or 2014,” said Mr. Jaitley.
The current account deficit is the net difference between inflows and outflows of foreign currencies. India’s CAD narrowed down from 4.7 per cent in 2012-13 to 1.7 per cent in 2013-14 because of a lower trade deficit as a result of modest recovery in exports and a sharp fall in imports, particularly gold imports.
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Joining the debate during Question Hour, Congress leader Anand Sharma said the CAD growing to 2.1 per cent, despite the fall in global crude prices, “is not very much a happy situation, as the Finance Minister is saying.”
He said there was concern that the crude import bill had drastically come down, but the country’s import bill had gone up and exports were falling.
The CAD was brought under control in 2013-14 after the government imposed restrictions on import of gold. Following this, in 2014, certain restrictions were withdrawn.
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“...if you put too many restrictions on gold, then the official entry of gold through the normal channels goes down, but through the unofficial smuggling channels it goes up. So, the moment the position became more comfortable, the position was liberalised,” Mr. Jaitley said.
“We are keeping a close eye on it and, at the moment, the situation is broadly under control. If some steps are required, it is only at that stage that we will consider the steps,” he added.
To another question, Mr. Jaitley said till November 27 of the current fiscal, foreign institutional investors and foreign portfolio investors had made Rs. 1,84,757-crore net investments in the country.
During the first six months, investments made by FIIs and FPIs stood at Rs 1,44,053 crore of which Rs. 82,810 crore came in the form of debt and the remaining in equity.