Saturday, April 18, 2009

India's Current Account Likely to go Surplus ......

India Panel: Current Account Likely Surplus

NEW DELHI -- India's current account is likely to swing to a surplus in the financial year that started April 1 as low crude oil prices shrink import bill, the chairman of the Prime Minister's Economic Advisory Council, an independent think tank, said Monday.
"The subsidy bill will be much less. Goods and service taxes and scope to raise resources through disinvestments will limit the government's need to borrow more than aimed," Suresh Tendulkar told Dow Jones Newswires.
He expects the current account to return to surplus in the quarter beginning October and remain positive for the financial year.
India's current account deficit for the last October-December quarter expanded to $14.64 billion - the widest in nearly two decades - from $4.53 billion a year earlier.
Also, the capital account balance turned negative for the first time in more than a decade with a deficit of $3.24 billion for the period - compared with a surplus of $31.27 billion a year earlier - due to net outflows under portfolio investment, banking capital and short-term trade credit.
Subsidy to state-run refiners for selling fuel at discounted prices was a major burden for the government in the financial year ended March 31, when crude oil prices had risen to record levels. India imports about 70% of its oil requirements.
"With the economy reviving around September-October, there will be a pick up in foreign investments and the Reserve Bank of India is likely to maintain a loose monetary policy until then," Mr. Tendulkar said.
He doesn't expect the central bank to cut its short-term lending rate - the repurchase rate- or the borrowing rate - the reverse repo rate - at its April 21 annual policy meeting. Instead, it will take measures to help transmit effects of earlier rate cuts into the economy as "liquidity remains ample," Mr. Tendulkar added.
The RBI has cut both the repo rate and the proportion of deposits commercial banks must set aside as cash by 4 percentage points since early October to 5.00%. The reverse repo rate has been lowered by 2.5 percentage points over the same period to 3.50%.
Mr. Tendulkar also ruled out the possibility of India overshooting its borrowing target in this financial year and risking further widening of the budgetary gap.
The government had in its February interim budget estimated to borrow 3.62 trillion rupees ($72.69 billion) in the current financial year, higher than the revised 3.06 trillion rupees target for the last financial year.
India's fiscal deficit ballooned to an estimated 6% of gross domestic product in the last financial year and is forecast at 5.5% for the current financial year.
The doubling of fiscal gap follows last financial year's high subsidy bill and several fiscal stimuli to boost economic activity.

1 comment:

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