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Export hope fails to mask CAD concern

New Delhi, July 9: The global economy is showing signs of growth, brightening the prospect of the country’s exporters. However, a spike in crude prices because of the strife in Iraq and a duty cut in gold could impact the current account deficit (CAD).

“With close monitoring and policies calibrated to emerging contexts upfront, it is likely that CAD may be limited to around $45 billion (2.1 per cent of the gross domestic product) in 2014-15, which is likely to be fully financed by stable sources of capital flows,” the Economic Survey 2013-14 said.

CAD, which is the the excess of foreign exchange over inflows, declined sharply from a record high of $88.2 billion (4.7 per cent of GDP) in 2012-13 to $32.4 billion (1.7 per cent of GDP) in 2013-14.

“After staying at perilously unsustainable levels of well over 4 per cent of GDP in 2011-12 and 2012-13, the improvement in the BoP (balance of payments) position is a welcome relief, and there is a need to sustain the position going forward,” it said.

Hiking customs duty in gold and silver to a peak to 10 per cent and liberalisation of external commercial borrowings have also helped to control rising CAD.

Gold and silver imports dropped 40 per cent to $33.4 billion in 2013-14

The pick-up in growth in the advanced economies offers some comfort for exports. However, a pick-up in GDP growth in the domestic economy, less than adequate pass through of global oil prices to domestic consumers and a complete withdrawal of restrictions on non-essential imports could potentially strain the BoP position, it said.

The focus of policy attention should be “putting in place alternative instruments for incentivising domestic saving and lessening the appetite for gold bullion as an investment option,” the survey said.

In 2013, India’s share in the world merchandise exports was 1.7 per cent.

“India should aim to increase its share in the world merchandise exports from 1.7 per cent in 2013 to a respectable ballpark figure of at least 4 per cent in the next five years,” it said adding “India’s exports should grow consistently by around 30 per cent annually to reach” that figure.

 
 
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