Current account deficit may widen more, inflation risks remain: RBI

Mumbai: India’s current account deficit is expected to widen further due to higher oil prices and sharp increase in imports of bullion, machinery and electronics, the Reserve Bank said on Thursday.

Inflation risks remain high and a slowdown in revenue collections and higher spending on subsidies may make it challenging to achieve the fiscal deficit target of 4.6 percent of gross domestic product in the fiscal year ending March, the Reserve Bank of India said in its Financial Stability Report.

[caption id=“attachment_162893” align=“alignleft” width=“380” caption=“Reuters”]  [/caption]

India’s current account deficit (CAD) swelled to $14.1 billion in its fiscal first quarter, nearly triple of the previous quarter’s tally. The full-year gap is expected to be around $54 billion.

More from Economy

Inflation likely to be a big focus area for budget 2024, say sources Explained: Will the Bank of Japan break tradition and raise interest rates?

“Recent data indicate further widening of the trade balance. Consequently, CAD which increased during Q1 of 2011/12 is expected to widen further,” the report said.

The trade deficit for 2011/12 is expected to widen sharply to between $155 billion and $160 billion from $104.4 billion a year ago, posing further downside risks to the rupee, which hit a record low last week.

The sovereign debt problems in Europe and global slowdown were also impacting India’s growth, the RBI said.

Higher government borrowings could crowd out private sector demand for funds and investment, it said, adding domestic demand was showing weakness.

Government data released earlier this month showed India’s industrial output fell in October for the first time in more than two years.

Reuters