The Hindu Business Line : Current account deficit may be kept at last year’s level

Kolkata, Dec 13 Despite higher imbalance on the external trade front in the current year vis-À-vis last year, the current account deficit this year is likely to be maintained at the last year’s level of around 1.1 per cent of GDP, according to Dr Rakesh Mohan, Deputy Governor, Reserve Bank of India.

This would happen because of the good flow of foreign funds, covering remittances and earnings from exports foreign direct investment and external commercial borrowings. “This is the reason, the management of foreign capital inflow has become so critical,” Mr Mohan observed, while addressing members of the Merchants’ Chamber of Commerce here on Thursday.

Till October this year, the trade deficit, as he pointed out, was $45 billion as compared to $33 billion in the previous year period and $65 billion in the whole of last year. Last year, the current account deficit was $9.6 billion, likely to be more this year, anything between $10 and $15 billion, he said.

The depth of the country’s foreign exchange market has increased as is evident from the daily volume of foreign exchange transactions at Rs 84,000 crore, up from Rs 21,000 crore in 2000-01. Quoting from BIS (Bank for International Settlement) report, he said the rate of growth of foreign exchange business in India had been highest though in terms of volume the country ranked 16th.

In the medium term, the objective of the RBI was to see that the rate of inflation was brought down to three per cent level, from the present around five per cent “to achieve fuller convertibility on capital account”, he said, declining however to set any time limit in this regard. “Keeping down the rate of inflation and maintaining the stability of the economy and momentum of growth would continue to receive priority,” he said and exuded optimism that the Indian banking sector would continue to be very strong as it never experienced the kind of crisis the banking sector in many advanced countries faced particularly in the ‘80s and ‘90s.

Extolling the performance of 82 commercial banks in terms of capital adequacy, NPAs, he said “our banks are approaching the world standards”. He felt that the private sector banks would post a significant growth in next 10 years.

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