India's higher current account deficit (CAD) is partly due to higher oil prices and the result of the export sector being hit by twin shocks of demonetisation as well as the goods and services tax, said Raghuram Rajan, former Reserve Bank of India (RBI) governor.
“We need to do everything on the war footing to get the export sector back up and running,” Rajan said.
India’s CAD as a percentage of GDP declined marginally to 2.4 percent in the April-June quarter of 2018-19 against 2.5 percent in the year-ago period.
Unfortunately, countries that have growing current account deficits and that have large fiscal deficits look vulnerable at these times, added Rajan
“India has a large fiscal deficit and the centre has been relatively moderating but the states have increased their fiscal deficit and on aggregate government fiscal deficit, it is quite large,” Rajan said.
“The fact that India is growing quite strongly gives some positive but in general we have to pay attention,” he said.