Dismiss Notice
Welcome to IDF- Indian Defence Forum , register for free to join this friendly community of defence enthusiastic from around the world. Make your opinion heard and appreciated.

CAD biggest risk to Indian economy: RBI

Discussion in 'World Economy' started by tunguska, May 3, 2013.

Thread Status:
Not open for further replies.
  1. tunguska

    tunguska Major SENIOR MEMBER

    Joined:
    Mar 10, 2012
    Messages:
    3,618
    Likes Received:
    1,379
    Describing high Current Account Deficit (CAD) as the biggest risk to Indian economy, the RBI on Friday said any further deterioration of CAD could result in its policy reversal stance.

    “The biggest risk to the economy stems from the CAD which, last year, was historically the highest...Monetary policy will also have to remain alert to the risks on the account of the CAD and its financing, which could warrant a swift reversal of the policy stance.â€￾

    CAD, which is the difference between the inflow and outflow of foreign currency, had touched a record high of 6.7 per cent in the December quarter of last fiscal year. The CAD in 2012-13 fiscal is likely to be around 5 per cent of the GDP.

    Elaborating further, the RBI said, “the outlook for Advanced Economies (AEs) remains uncertain, and even if there may be no event shocks, there could well be process shocks which could result in capital outflows from Emerging Developing Economies (EDEs)â€￾.

    It said even as the large CAD is a risk by itself, its financing exposes the economy to the risk of sudden stop and reversal of capital flows, should global liquidity rapidly tighten.

    “Further, with quantitative easing (QE), AE central banks are in uncharted territory with considerable uncertainty about the trajectory of recovery and the calibration of QE.

    Should global liquidity conditions rapidly tighten, India could potentially face a problem of sudden stop and reversal of capital flows, jeopardising our macro-financial stability.

    The apex bank also noted that a large CAD, appreciably above the sustainable level, year after year, will put pressure on servicing of external liabilities.

    It said sustained revival of growth is not possible without a revival of investment.

    On Thursday, the apex bank in its Macroconomic and Monetary Developments Report 2012-13 had said the CAD in FY14 was likely to benefit from the moderation in global commodity prices.

    Gold prices had fallen to a 21 month low at Rs 26,440 per 10 grams in the domestic markets on April 16 due to continued sell-off in the global markets.

    Though there have been some recovery in gold prices in the spot as well as futures market, uncertainty looms large over the way prices would move, going forward.

    Gold prices had touched all-time high of Rs 32,975 per 10 gm on November 27, 2012.

    The apex bank had also expressed concern over rising external debt and short-term borrowings to meet the widening CAD.

    “Short-term debt on a residual maturity basis increased to 44 per cent of total debt and 56 per cent of the foreign exchange reserves by end-December 2012,â€￾ it had said.

    CAD biggest risk to Indian economy: RBI - The Hindu
     
  2. Himanshu Pandey

    Himanshu Pandey Don't get mad, get even. STAR MEMBER

    Joined:
    Jul 21, 2011
    Messages:
    10,210
    Likes Received:
    4,220
    Country Flag:
    India
    it can be downed by few percent if we just change our approach on business.

    we need to put a uniform taxes of maximum 4 types excluding income tax. and we need to tax all those things which we import but they are not critical for us.

    1. like we can put a 200% tax on chinise mobiles, electronic systems, crackers, electrical equipments on the basis of quality, anti-dumping laws and making market more fair.this can genrate some thousand corore as tax money.. if chinise stay or run away(in first we tax use of chinise product and if they run away demands will be met by Indian industries which means employment, growth of economy and more tax money)

    2. we import a lot of fruits from foreign nations.. eating fruit is good but not necessary if it is forign produced... for exapmle the apple market worth 50000 caror and dominated by American and new zealand's apple which are cheaper then Indian.. now if we put import duty on it.. this will increase the tax ratio and the demand will become domestic which means less trade deficit and more employment.

    3. use of all govt. IT companies for creating a complete tax coverage... which include each employed person either he is tax-payer or not... the data base should be created as automated system with real time query search.

    4. all the local bodies on city/village district level should be allowed to establish a 100 MW plant for their domestic needs without needing any permission from states or central.. but the power plant should be only based on renewable energy... they should have complete authority on these plants... or they can tell a private player to make them and they can purchase electricity for them.

    5. create a constitutional body for NGOs which does not report to govt. but puts its reports on parliament table for information and put all NGO under this.. this body should be responsible for accounting and auditing all the money coming in these NGO. it will reduce the transfer of black money... good for economy and good for taxations.

    there are several more steps but these 5 can be started within a month and completed in a year only if a govt. is willing
     
  3. UNAM

    UNAM 2nd Lieutant FULL MEMBER

    Joined:
    Feb 20, 2011
    Messages:
    231
    Likes Received:
    57
    ^^^^^^^^^^^

    putting high taxes on foreign materials could be the solution but it may have adverse effects on business inflow in india & for growing economy like india loss of any kind of business is not right.
     
  4. Himanshu Pandey

    Himanshu Pandey Don't get mad, get even. STAR MEMBER

    Joined:
    Jul 21, 2011
    Messages:
    10,210
    Likes Received:
    4,220
    Country Flag:
    India
    No it will not be... the cheap mobiles we use, or cheap electrical products used by us are not good in quality and Indian companies are making money by trading not by producing... we all discuss about increasing the industrial base of nation but how it can be done when you prefer a cheap chinise cracker with 0 safety and low chances of fired in diwali rather then good indian crackers.

    if you recall there were some indian data cards in market when chinise intruded now.. all we have are cheap chinise or high price western data cards. the fruits like apples and others can be produced in all hilly states of India but we import them... which means a lot of loss in employment and this has a drastic effect on economic growth of India.

    for example if a person produce something like 50 mobile in a month it means 6000 in a year.. now if we have a demand for 60 million mobile it means a direct jobs for 1 lac person as manufactures now if we add all other managerial, quality and transport requirements involved it goes up to 1,40000 employment... the mobiles produced need a lot of products produced in other industries which means a lac job in other industries(hypothetically), then it will require transport system, power, office and factory establishment which create couple lac jobs and now all these employed person need better life which directly go in creation of schools, colleges, hospitals, shopping complex and thousand of other activities which create few thousand jobs and in the end all the money used in this process remains in India and rotate here which create a better economic growth.

    now this better economic growth will boost the economy which increase the credit rating of nation and more FDI which is again good for nation.... put this example in all other products.

    and combinedly we will see a economy on boost... the demand of 1.2 billion people is enormous and if only we target to be self sufficient in these low tech products... this will be a deja vu for our own economy and good for people... so why is it bad?
     
    1 person likes this.
  5. INDIAN NATIONALIST

    INDIAN NATIONALIST Major SENIOR MEMBER

    Joined:
    Oct 15, 2011
    Messages:
    2,175
    Likes Received:
    1,558
    Not necessarily. There may be temporary slow in growth that India will have to work thru but India will adjust over time by investing in domestic alternatives for which there can be plenty in a nation as large as India, and will have the added benefit of weaken PRC industrial / economic leverage on India. I think taking a longer term view, it is justified in India's best interest.

    When the economy is strong enough to out-compete rivals and self-sufficient to provide for all its citizens' needs when necessary, then India should take more free-trade approach because at that stage Indian industry will be strong enough to compete successfully on international stage on a level field. However, at current stage of development, Indian business and industry will requires a protectionist approach, including high tariffs, as do those of any developing economy.
     
    Last edited: May 4, 2013
Thread Status:
Not open for further replies.

Share This Page