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    Twin deficits not an immediate threat to India, says economist Barry Eichengreen

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    Twin deficits not an immediate threat to India, says economist Barry Eichengreen

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    Economist Barry Eichengreen speaking to CNBC-TV18 said that there is no immediate threat to India's economy due to high current account deficit and fiscal deficit. However, he believes that maintaining a growth rate of 7 to 8 percent will be challenging, especially given the decline in India's savings rate.

    Financial markets are swinging between fears of high inflation and liquidity tightening to worries of recession to joys of continued strong economic performance, especially of the US economy.
    The Indian rupee too has fallen and risen with the strengthening and ebbing of the dollar. But now some real worries have emerged in India over the current account deficit. Worries that the deficit may get as high as nearly 4 percent of the GDP this year.
    Another rate hike from the monetary policy committee could be on the cards tomorrow. 90 percent of the economists polled by CNBC-TV18 expect a hike of 35 to 50 basis points -- a majority also see the repo rate rising by at least 75 basis points by December.
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    Economist Barry Eichengreen speaking to CNBC-TV18 said there is no immediate threat to India's economy due to the high current account deficit and fiscal deficit. However, he believes that maintaining a growth rate of 7 to 8 percent will be challenging, especially given the decline in India's savings rate.
    He said, "I don't think that India faces an eminent fiscal and financial crisis but government depth that is issued to finance the fiscal deficit can be placed with the banks and with the financial system at home more broadly."
    Speaking to CNBC-TV18, former governor and economist, Dr YV Reddy pointed out the possible peaking off of savings and reducing potential growth of the country.
    Eichengreen said, "I think that the threat to maintaining the 7-8-9 percent growth is on the saving side as we have said if India invests more than it saves it has to borrow a lot in order to make up the difference. It can borrow in a relatively benign fashion by attracting direct foreign investment, or it can borrow on to global bond markets. However, India hasn't done such a great job at attracting foreign direct investment."
    For the full interview, watch the accompanying video
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