QE3, weak basics’ role in June 2013 crash - DR. N. A. MUJUMDAR

.....The balance of payments current account deficit ( CAD) poses the biggest challenge to the Indian economy. The gap between investment and savings is reflected in the CAD. As a rule of thumb, a CAD of 2.5 per cent of GDP can be comfortably financed. With CAD soaring to 5 per cent of GDP in 2012- 13, the external payments position has become alarming. Although the CAD was financed without any significant loss of reserves so far, it should be realised that international capital inflows are capricious; and there could be large and sudden outflows, as we witnessed in June, which could disrupt the growth of the economy. Cutting down the size of CAD has thus become an immediate imperative. Unfortunately, our policy makers are focussing on financing the CAD, rather than on cutting down the dimension of CAD. This must change......

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