Tuesday, February 5, 2013
OIL..THE MAIN CULPRIT
Global banking major HSBC today said rising
oil consumption, and not gold import, is the real culprit that is
pushing up India's current account deficit (CAD) to record high. "The
biggest risk to the exchange rate is the current account deficit (CAD)
which is almost entirely on account of oil imports. But I know all the
focus is on gold," HSBC head of global markets for India Hitendra Dave
told reporters here. The comments come on the back of raging debate
over rising gold import and its impact on CAD, which hit a record high
of 5.4 per cent in second quarter. Both the Reserve Bank as well as the
government have taken a slew of steps to curtail gold demand. They are
also planning to launch financial instruments which reduce the need to
physically import the yellow metal. The oil bill, which stood at USD
140 billion in FY'12, will come down only if crude prices go down by
10-12 per cent and the rupee is constant. Both are not happening, Dave
said. India imports over 70 per cent of its oil demand. "Oil is the
biggest risk, the other inputs could be coal...may be the energy
basket," he said, underplaying the role of gold imports leading to
higher CAD. Gold imports constituted around 35 per cent of CAD
(difference between exports of goods, services and total imports) in
FY12 when it stood at 4.2 per cent. RBI has said CAD was a big concern
vis-a-vis macroeconomic stability. Another reason for the rising trade
deficit is exports, which have been falling all through the current
fiscal, Dave said. Higher input costs, wages and falling rupee make our
exports non-competitive, he said. On fiscal deficit, the other key
deficit number on the radar, HSBC's chief economist for India and Asean
Leif Eskesen said the government will find it difficult to meet the 5.3
per cent target this fiscal and narrowing it further to 4.8 per cent of
GDP next fiscal will be a challenge. The government is working over
time to trim expenditure to meet the desired mark for FY13 and cannot
afford to go on an overdrive of populist measures if it were to rein it
at 4.8 per cent for FY14, he said. The process of reforms and fiscal
consolidation will, however, continue and be visible in the forthcoming
Budget, Eskesen said.
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