Take away of Chief Economic Advisor press confrence

Gold imports, one of the key drivers for country's widening current account deficit, have come down in the first fortnight of June this year, said chief economic advisor, Raghuram Rajan speaking in New Delhi.

At the same time, he tried to calm the nerves of currency market by saying that the rupee depreciation against the US dollar is in line with other emerging market currencies, which are also falling. The Indian rupee tumbled to a record low at 58.98 against the greenback.

Gold imports

"Large part of rupee decline was due to dollar strength. This may current account deficit larger than previous months. Gold imports have fallen considerably and we expect significantly lower gold imports due to steps taken by the government," he said speaking in New Delhi.

Last week the government had increased import duty on gold to 8 percent, the second such hike within two quarters. The monthly gold imports stood at around 150 ton on an average between April and May this year as against 70 ton recorded in 2012-13.

The Reserve Bank of India too has taken some measures to curb the fettish for gold.

"The government, SEBI and RBI are watching rupee (exchange rate movements) closely and will undertake necessary action. Rupee is possibly going to undervalued territory We have seen debt inflows of USD1.5 billion since May 25 this year. However, the debt outflows stood at USD 2.5 billion recently but inflows of USD 1.5 billion," Rajan said.

The central bank on Tuesday intervened to stem rupee's sharp fall by way of asking state-owned banks to sell dollars. The local currency recouped its early losses after hitting all time low at 58.98/USD. At 16:50 hrs, it is trading at 58.42 per US dollar.

Re depreciation & inflation dynamics

However, the government does not like rupee volatility as it has an impact on inflation, he said.

Indian importers especially on account of oil and gold, are to pay at a higher rate to their overseas clients due to declining rupee. As companies spend more, they will pass on the extra cost to consumers back home. This will put pressure on inflation.

CAD spectrem

Accordingly, a higher import bill would further expand the current account deficit (CAD).

"The government will undertake measures to keep CAD under check. It will ensure that CAD will be financed. We will look to enhance FII limits to ensure safe CAD inflows. Current Account gap is seen narrowing in next few months," he added.

GDP Growth

Commenting on India's GDP growth, he said that growth should pick up as Preliminary Indicators on Services (PMI) was showing a pick up. In 2012-13, India clocked a GDP growth of just 5 percent. It is likely to be around 6 percent in FY14, according to a market consensus.

"We are looking at ways to improve growth potential of the economy. We are exploring ways to revive the investment cycle. The country should focus on stable financing unlike hot money inflows (FII money)," he concluded.

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