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Must slash current account deficit to 2.5%: Rangarajan

Last updated on: November 29, 2012 12:43 IST

Must slash current account deficit to 2.5%: Rangarajan

Prime Minister's Economic Adviser Council chairman C Rangarajan has said there is a need to bring down the current account deficit to 2.5 per cent over a period of time from over 4.5 per cent at present.

He, however, pegged the current account deficit for the current fiscal at 3.5 per cent of the GDP.

"The current account deficit is remaining at high level and we should work towards getting the current account deficit to more moderate levels," he told reporters at the sidelines of a function.

"We should aim at the current account deficit of 2.5 per cent of the GDP down from the current 4.5 per cent. But in the current year, perhaps, the current account deficit may be around 3.5 per cent of the GDP," he added.

Rangarajan, however, did not elaborate on the methodology to bring down the current account deficit.

Stating that the country is moving in a "difficult phase" on its economic growth, Rangarajan said one of the tools that is required to bring the economy back on the growth trajectory was to bring down the current account deficit.

Besides moderating the current account deficit, the former Reserve Bank Governor said the country is required to address some major macro-economic concerns like "taming the inflation" and addressing "fiscal deficit".

"In order to get back to the high level of growth, we need to address some major macro economic concerns -- first is to tame inflation. We had three years of high inflation. We need to bring it down to more comfortable levels.

"Second, the process of fiscal consolidation must continue and we should work towards getting the fiscal deficit down to three per cent of the GDP over the next five years. Finance Minister P Chidambaram has already outlined the map for fiscal consolidation. We should adhere to it," he said.

On the government's decision to allow FDI in multi-brand retail, Rangarajan said: "I think the government has taken a decision and it is trying to build a consensus on that. In democracy, there is always be some dissent. But it is a question of achieving the highest degree of consensus".

He added that in the long run, it is "good" for the country.

Rangarajan said FDI in multi-brand retail will streamline the existing distribution mechanism.

"But it is also taken care to see that it does not affect the small retailers. A rule also has been made that 30 per cent of the total goods should be sourced from small and medium enterprises.

"Therefore, sufficient precautions have been taken. I think the new retailers when they come in, will be able to reduce the distribution margin and make the agriculture commodities, in particular food commodities, more at a cheaper rate", he said.

Earlier in the day, participating at the 14th Pole Star Foundation award function organised by Polaris Financial Technology, he said there are two major sectors of the economy which needs immediate attention.

"One is agriculture and the other is infrastructure, more particularly power. Power shortage has become very acute. I do not have to say for the people in Chennai or Tamil Nadu," he said.

He said, the last two years have clearly shown that how even a short fall in agriculture productivity can cause serious distortions in the economy.

"Therefore we need to focus attention on it from the point of reducing poverty, from the point of food security. We need to ensure agriculture grows at four per cent per annum. And also, we need to see that the basket of goods we produce even in agriculture must also change according to the demand pattern," he said.

On the acute power crisis, he said: "We need to address the issue. We must understand that China adds in one year in terms of capacity addition in power, what we add in five years. That is the magnitude of difference between India and China".

"I know there are issues like availability of coal, land acquisition, environmental concerns. We must address all these things," he said.

Photographs: B Mathur/Reuters

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