Capital inflows insufficient to cover current account deficit: Rangarajan

C. Rangarajan, the chairman of the Prime Minister’s Economic Advisory Council (PMEAC), said capital inflows into India were insufficient to cover the current account deficit.. Last week, Japanese brokerage Nomura said India’s current account deficit may touch 4.2 per cent of gross domestic product (GDP) this fiscal year as well as upside risks to the external environment are rising for the economy, said today.. The brokerage had earlier forecast a tempered 3.8 per cent current account deficit, the difference between the country's total imports and transfers, and total exports and outward transfers, for this fiscal year, following a steady fall in inward and outward shipments and the resultant narrowing of trade deficit in the first half of the fiscal year.. In the past fiscal year, the current account deficit hit a record of 4.2 per cent of GDP.. "With (the) external situation remaining very worrying, we see more upside risks to our current account deficit projection of 3.8 per cent with the current trends suggesting that it could be as high as 4.2 per cent of GDP, which was recorded (the) last fiscal year," Nomura India economists Sonal Varma and Aman Mohunta said in a note.. However, they blamed the latest spike in imports due to the import substitution, saying: "The phenomenon of rising imports and lower domestic output can be explained by increasing import substitution as a result of supply-side constraints and elevated inflation.". The trade deficit widened to an all-time high of $21 billion in October from $18.1 billion in September due to weak exports, which declined for the sixth month in row to minus 1.6 per cent year on year in October and surging imports which rose 7.4 per cent in the month.. On the fiscal deficit, which the government has targeted at 5.3 per cent, the PMEAC chairman said there were a few more months left to rein in the fiscal deficit and the government will try to meet the target with some measures.. In an interview with NDTV over the weekend, Barclays Capital chief India economist Siddhartha Sanyal said the fiscal deficit this year will likely be in the 5.5-5.7 per cent range. The Reserve Bank of India’s December policy remains a very close call since inflation is still very high. The impact of cash reserve ratio cuts should not be ignored, he noted, adding that he expects a repo rate cut of 50 basis points in the next quarter.. On a positive note, Mr Sanyal said the September index of industrial production (IIP), which shockingly contracted by 0.4 per cent, was a surprise but that the IIP in the coming months was expected to be better.. The global bank is forecasting a 5.3 per cent GDP growth for the second quarter of this fiscal year and a 5.8 per cent growth for the full fiscal year. There are multiple pressure points on the balance of payments currently and there will unlikely be any dramatic turnaround on that front.

Capital inflows insufficient to cover current account deficit: Rangarajan

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