High CAD a matter of concern: RBI Governor.

New Delhi: Calling current high CAD as a matter of concern, RBI Governor D Subbarao Monday said this would be factored in the monetary policy review later this month to contain the deficit.

"CAD is a matter of concern and this is something which we will take into account in our monetary policy decision," he said in an interview.

RBI is scheduled to announce its first mid-quarter review of monetary policy on June 17.

The CAD, which is the difference between the outflow and inflow of foreign currency, touched a record high of 6.7 percent in the October-December quarter on the back of rising oil and gold imports.

Subbarao said it is a concern for a number of reasons including the fact that the country can run a large CAD one year but it cannot do it year after year.

"From the RBI's perspective, CAD is a concern because it has implications for the exchange rate and thereby for inflation," he added.

Listing steps that can be taken to deal with the problem of high CAD, Subbarao said, while exports have to go up, there is a need to quickly deal with the import side issues.

"If for example, petroleum sector prices are market- determined or close to market-determined, subsidies are reduced, then demand will adjust. That can help.

"Government has raised the customs duty on gold import. The RBI has come out with some regulations to restrain the import of gold. But we need to increase exports in a big way and reduce dead-weight import like gold," he said.

Last month, the RBI had imposed curbs on import of the yellow metal by banks. Besides, it has also put restrictions on banks and NBFCs for providing loans against gold coins as well as units of gold ETFs.

The government has also taken steps like hike in import duty to restrict gold imports.

Gold imports into India, the world's largest consumer of the metal, stood at around 830 tonne in 2012-13.

Meanwhile, expressing concern over rising gold imports, Commerce and Industry Minister Anand Sharma today advocated that import of the precious metal should be only for actual usage and not for trading purposes.

Sharma today met Finance Minister P Chidambaram and discussed the gold import situation, among other issues.

"Yes, I met the FM and discussed it. We have serious concerns. We cannot allow a situation where gold (imports) in the last two months have reached a stage where it is causing huge stress," Sharma said after the meeting.

Gold imports stood at 162 tonnes in May. Gold and silver imports during April, 2013 jumped by 138 percent to USD 7.5 billion, as against USD 3.1 billion in the year-ago period.

Source : zeenews.india.com