On Way Out, PC Eases Mea­sures to Rein in CAD

The Economic Times - - Economy - OUR BUREAU

Out­go­ing fi­nance min­is­ter P Chi­dambaram, who drew up a com­pre­hen­sive frame­work – in­clud­ing curbs on gold im­ports and schemes to raise for­eign ex­change – to rein in the cur­rent ac­count deficit (CAD), en­sured that some of the strin­gent mea­sures were re­laxed be­fore he checked out of North Block. There had been ex­pec­ta­tions that mea­sures might be rolled back af­ter the dra­matic im­prove­ment in the CAD, ex­pected to have come in at 2% of GDP in FY14 com­pared with a record 4.8% in the year be­fore. Chi­dambaram also ap­proved the re­lax­ation of the 80-20 scheme. This stip­u­lates that 20% of all gold im­ported should be ex­ported. Last week, RBI said star and pre­mium trad­ing houses would qual­ify for the scheme, a move that the trade said would ease the avail­abil­ity of the metal. With the spec­tre of high CAD hav­ing re­ceded and the ru­pee sta­ble, Chi­dambaram had also pushed for restor­ing the over­seas in­di­vid­ual in­vest­ment limit to $200,000, which had been slashed to $50,000, and nor­malcy in the cur­rency de­riv­a­tives mar­ket.

PC was par­tic­u­larly keen that star trad­ing houses along with pre­mium trad­ing houses be al­lowed to im­port gold when he re­viewed curbs on April 30.

The govern­ment had re­peat­edly been get­ting rep­re­sen­ta­tions from in­dus­try and the com­merce depart­ment for lift­ing curbs on im­ports of the metal be­cause of the im­pact on gems and jew­ellery, In­dia’s sec­ond big­gest ex­port, which fell 5.2% in 2013-14 to $41.1 bil­lion. The de­mand for re­lax­ation had es­ca­lated af­ter it be­came ev­i­dent that the govern­ment’s strat­egy had suc­ceeded in bring­ing down CAD.

A vul­ner­a­ble ex­ter­nal sec­tor on ac­count of high CAD trig­gered a sharp de­pre­ci­a­tion in the ru­pee af­ter the US Federal Re­serve chair­man at the time spoke of wind­ing down its stim­u­lus pro­gramme. Cap­i­tal fled emerg­ing mar­kets. Wary in­vestors pulled out in­vest­ments over fears that In­dia would not be able to fund its CAD and the cur­rency plunged to nearly 69 per dol­lar by end Au­gust. The govern­ment then went into fire-fight­ing mode with mea­sures that in­cluded curbs on the im­port of gold and steps to shore up dol­lar re­serves.

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