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Govt should focus on boosting exports, protectionism won't reduce CAD: FIEO

Press Trust of India/New Delhi 15 Sep 18 | 03:30 PM

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The government should focus primarily on boosting exports to check the widening current account deficit as imposing curbs on imports may not have a significant impact, exporters' body FIEO said Saturday.

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Federation of Indian Export Organisations (FIEO) President Ganesh Gupta said the government should not restrict imports to address rising current account deficit (CAD) and fall in rupee.

"I do not think that we should restrict imports unless we want to join the bandwagon of protectionism and hope that it will spur Make in India," he told PTI.

He also said that CAD at 2.5 per cent of GDP should not be a cause of concern as anything below 3 per cent is not alarming.

"We have sizeable forex reserves to cover 10 months of imports," he added.

The government Friday announced an array of steps, including removal of withholding tax on Masala bonds, relaxation for foreign portfolio investments, and curbs on non-essential imports, to contain the widening CAD and check the rupee depreciation.

FIEO Director General Ajay Sahai said the government should immediately ease liquidity for exporters.

He said that if the government wants to impose curbs on non-essential items, they can consider products such as high-end electronics goods, refrigerators, watches, gold, and high-end footwear and garments.

ALSO READ: Government unveils steps to check CAD, PM Modi reviews health of economy

However, trade experts raised concerns over imposing import restrictions on goods like gold as it will not help in checking trade deficit.

"It's very unlikely to help. The government has to consider the pros and cons carefully about such steps," Professor Biswajit Dhar of Jawaharlal Nehru University said.

He said that knee-jerk solutions will not help and the government should take a medium-term view, for instance, steps for revival of the manufacturing sector.

The current account deficit (CAD), which is the difference between inflow and outflow of foreign exchange, widened to 2.4 per cent of the GDP in the first quarter of 2018-19.

Large trade deficit and rupee decline against the US dollar are putting pressure on the CAD.

The rupee touched an all-time low of 72.91 against the US dollar on September 12 and it closed at 71.84.

The domestic currency has declined around 6 per cent since August and touched an all-time low of 72 level this week. Petrol and diesel prices have also touched record highs.

Trade deficit soared to a nearly five-year high of $18 billion in July but dipped slightly at $17.4 billion in August.

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