India to be $10-trn economy by 2030; 2.5% CAD no problem: finance ministry
20 June 2018
India’s current account deficit (CAD) at 2.5 per cent of GDP won't be a worry for the government as this can be balanced by capital account inflows, economic affairs secretary Subhash Chandra Garg said, even as he said the country has the potential to become a $10-trillion economy by 2030.
Garg said India has the potential to become a $10-trillion economy by 2030 and this can be achieved if the economy achieves a “sustained” average growth of 8 per cent and an assumed devaluation of the rupee against the US dollar by rupee one per year.
Addressing the “6th Growth Net Summit” organised by Ananta Centre, the Confederation of Indian Industry (CII) and Smadja and Smadja in New Delhi, Garg said a “sustained” average growth of 8 per cent would likely take India to the stated target.
This, however, is based on an assumed devaluation of Indian rupee against the US dollar by one rupee per year, he said.
"2-2.5 per cent CAD is not a problem for us.... If there is stability, in the current year capital account (inflows) should be good enough to take care and we may not worry even if it (CAD) reaches 2.5 per cent," Garg said.
CAD, which is the difference between the inflow and outflow of foreign exchange, jumped to $48.7 billion, or 1.9 per cent of GDP, in 2017-18 fiscal. This was higher than $14.4 billion, or 0.6 per cent, CAD in 2016-17 fiscal.
"Last year, we had $160 billion of trade deficit, $82 billion services surplus and $70 billion remittances. In a way, we are pretty much in balance.
"But if oil goes up, this balance gets disturbed and the capital account funds it," Garg said at the CII event.
With rising oil prices, depreciating rupee and outflow of portfolio investments, there are concerns that CAD might rise in the current fiscal.
The price of Indian basket of crude surged from $66 a barrel in April to around $74 a barrel at present.
On fiscal management, he said the fiscal situation will not be allowed to deteriorate even though this is an election year.
Besides, he said that India would shortly achieve the targeted three per cent fiscal deficit level and that it will be more permanent and sustainable in nature.
In terms of macros, Garg said that tax to GDP ratio has improved from 10 per cent to 11.6 per cent, and fresh private capital investment is likely as capacity utilisation has increased.
Commenting on the banking sector, he said that great level of financialisation of economy has happened since demonetisation where mutual funds have become a major non-banking investor. He predicted that going forward, the economy will rebalance from bank based to financial markets based lending.
Garg said that GST has changed the way corporates interact with the tax infrastructure. He expressed satisfaction on ‘job creation’ in the economy and highlighted that more needs to be done in infrastructure and manufacturing sector.