Narrowing CAD to help lift rupee, ease inflation

Narrowing of the current account deficit will help arrest depreciation of the rupee and ease inflation concerns, industry groups said.

"The biggest positive should be on the rupee, which should ease concerns on inflation," Assocham President Rana Kapoor said.

India's current account gap narrowed to $5.2 billion, or 1.2 per cent of GDP, in July-September, the Reserve Bank of India said Monday. The difference between outflows and inflows of foreign exchange was $21 billion, or 5 per cent of GDP, in the second quarter of the previous financial year.

"This would help in strengthening of rupee and more consolidation of the inflationary scenario," President of the PHD Chamber of Commerce Suman Jyoti Khaitan said.

The deficit narrowed as exports picked up and after gold imports declined on steps taken by the RBI and the government.

"A sharp fall in the current account deficit (CAD)

as a result of decisive measures by the government and the RBI demonstrates the fact that when we want to do it, we are able to do it," Kapoor said.

The government and the RBI expect CAD to be less than $56 billion in the current financial year, compared with a record $88.2 billion, or 4.8 per cent of GDP, last fiscal.

"Improvement in the external scenario will help stabilise the overall macroeconomic situation of the country and pave the way for growth to revive further and attain its potential," Khaitan said.

The government should now focus on meeting the disinvestment target to address concerns on public finance and take measures to contain inflation, which will revive consumer confidence, Kapoor of Assocham added.

The disinvestment target for the current fiscal is pegged at Rs 40,000 crore (R 400 billion).

The rupee fell five paise to close at 62.36 against the dollar today. Inflation as measured by the wholesale price index was at an eight-month high of 7 per cent in October.