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Current account deficit pegged at 3.5 per cent this fiscal: Rangarajan

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Chennai:

Government has pegged that the current account deficit during this fiscal to be at 3.5 per cent of the GDP, much higher than the expected levels, and there was need to bring it down at "moderate levels", Dr C Rangarajan, chairman of Prime Minister's Economic Advisory Council (PMEAC) said on Wednesday.

Noting that the country’s economy was going through a "difficult phase", Dr Rangarajan said, bringing down current account deficit is one of the tools was required to bring the economy back on the growth trajectory.

"The current account deficit is remaining at high level and we should work towards getting the current account deficit to more moderate levels. We should aim at the current account deficit of 2.5 per cent of the GDP down from the current 4.5 per cent. But in the current year, perhaps, the current account deficit may be around 3.5 per cent of the GDP", he told reporters late last night at the sidelines of a function.

Besides moderating the current account deficit, the former Reserve Bank Governor said the country was required to address some major macro-economic concerns like "taming the inflation" and addressing "fiscal deficit".

"In order to get back to the high level of growth, we need to address some major macro-economic concerns -- first is to tame inflation. We had three years of high inflation. We need to bring it down to more comfortable levels,” he said.

“The government is striving to rein in fiscal deficit at 5.3 per cent of the gross deficit product (GDP) by keeping a check on its expenditure,” Finance Minister P. Chidambaram had said last week in a written reply to the Rajya Sabha.

Global ratings agency Moody's had cited persistent high inflation has one of the key concerns for the Indian economy. Investment bank Goldman Sachs on Thursday lowered its GDP growth forecast for 2013 to 6.5 per cent on the back of inflationary concerns. “On a near-term basis, the main risk is inflation, which has been persistently high with some recent signs of cooling,” it said in its report.

Dr Rangarajan also reiterated the need for fiscal consolidation.

“The process of fiscal consolidation must continue and we should work towards getting the fiscal deficit down to three per cent of the GDP over the next five years. Finance Minister P Chidambaram has already outlined the map for fiscal consolidation. We should adhere to it", he said.

The government had revised its fiscal deficit target downwards to 5.3 per cent from the budgeted 5.1 per cent for this financial year in October in view of a burgeoning oil and food subsidy bill as well as subdued revenue collection. However, financial markets largely expect it to overshoot its target to 5.6 per cent of the GDP.

“The government is striving to rein in fiscal deficit at 5.3 per cent of the gross deficit product (GDP) by keeping a check on its expenditure,” Finance Minister P. Chidambaram had said last week in a written reply to the Rajya Sabha.

On the government’s decision to allow FDI in multi-brand retail, Dr Rangarajan said "I think the government has taken a decision and it is trying to build a consensus on that. In democracy, there is always some dissent. But it is a question of achieving the highest degree of consensus", he said, adding, in the long run it is "good" for the country.

According to the chief advisor, FDI in multi-brand retail will streamline the existing distribution mechanism. The proposal has seen wide protests from the Opposition and former ally Trinamool Congress, and was the cause for adjournment of the first few sessions of the Winter Session of Parliament. The Opposition alleges that the proposal will hurt small retailers, which form a major part of the industry.

"It [government] has also taken care to see that it does not affect the small retailers. A rule also has been made that 30 per cent of the total goods should be sourced from small and medium enterprises. Therefore, sufficient precautions have been taken. I think the new retailers, when they come in, will be able to reduce the distribution margin and make the agriculture commodities, in particular food commodities, more at a cheaper rate", he said.

Earlier participating at the 14th Pole Star Foundation award function organised by Polaris Financial Technology, he said there are two major sectors of the economy which needs immediate attention.

"One is agriculture and the other is infrastructure, more particularly power. Power shortage has become very acute. I do not have to say for the people in Chennai or Tamil Nadu", he said.

He said, the last two years have clearly shown that how even a short fall in agriculture productivity can cause serious distortions in the economy.

"Therefore we need to focus attention on it from the point of reducing poverty, from the point of food security. We need to ensure agriculture grows at four per cent per annum. And also we need to see that the basket of goods we produce even in agriculture must also change according to the demand pattern", he said.

On the acute power crisis, he said, "We need to address the issue. We must understand that China adds in one year in terms of capacity addition in power, what we add in five years. That is the magnitude of difference between India and China".

"I know there are issues like availability of coal, land acquisition, environmental concerns. We must address all these things", he said. 

With inputs from PTI, Reuters

Story first published on: November 29, 2012 11:55 (IST)

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