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CAD needs monitoring, EAC puts figure at 2.9% of GDP

Written by: Staff

New Delhi, Feb 22 (UNI) The Economic Advisory Council (EAC) to the Prime Minister has projected the Current Account Deficit(CAD) at 2.9 per cent of the GDP and warned that its size and composition warrant continuous monitoring.

Besides, the EAC says as a proportion of GDP, capital flows are slated to decline marginally from 4.5 per cent of GDP in 2005-06 to 4.1 per cent of GDP in 2006-07. "Nevertheless, they are likely to be large enough in 2005-06 to fully bridge the current account deficit and leave a margin of 10.7 billion dollar on top of that as net accretion to reserves", the EAC says in a note on 'Outlook for the Balance of Payments for 2005-06 and 2006-07" The projections are based on the reported BoP data for the first half of 2005-06 (April- September 2005) and the provisional figures for merchandise exports and imports up to January 2006.

The Report says while it was appropriate for an economy of India's size with vast investment needs to be running a CAD, its "size and composition warrant continuous monitoring." At almost 3 per cent of GDP, the CAD may still be in the comfort zone provided it goes to finance productive investment.

The EAC points out that 'Invisibles' continue to be buoyant. The larger estimated outflow under investment income this year compared to last year, partly owing to the payout of accumulated interest on India Millennium Deposits in December 2005, will be more than offset by increases in software exports and remittances. "Indeed, net invisibles are projected to increase from 4.5 per cent of GDP last year to 4.8 per cent of GDP this year," the Report says.


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