India can tolerate a Current Account Deficit (CAD)of 2.5-3.0 per cent of GDP without experiencing an external sector crisis, Reserve Bank of India Deputy Governor Michael Patra said on Saturday.
“In a telling reminder of this fact, a record increase in oil prices and high gold imports took the current account deficit above this Plimsoll line and to historically high levels during 2011-13,” Patra said at an event in Bhubaneshwar celebrating 75 years of India’s independence.
“When the US Federal Reserve contemplated the end of easy monetary policy in the summer of 2013, India faced the taper tantrum and was labelled as among the fragile five,” he said.
Over the last few months, India has faced upward pressure on its trade deficit sparked by a sharp rise in international commodity prices due to supply-side disruptions following Russia’s invasion of Ukraine.
The domestic trade deficit widened to a record high $31 billion in July. India is the world’s third largest importer of crude oil.
Several economists, including those from Bank of America, expect India’s CAD to rise to around 3 per cent of GDP in the current financial year, sharply higher than 1.2 per cent in the previous fiscal year.
Providing a projection for India’s future growth, Patra said that according to calculations by the Organization for…
