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Current account surplus likely

BS Banking Bureau

After a gap of 24 years, India is set to see a current account surplus in fiscal 2002.

"The current account could see a small surplus, if at all there is any, at the end of the year," Reserve Bank of India governor Bimal Jalan said on Tuesday on the sidelines of a Confederation of Indian Industry banking seminar.

The last time the country saw a surplus in its current account in the balance of payments was in 1977-78.

India's foreign exchange reserves have been rising and Jalan said there was no problem on the BoP front.

On March 22, India's foreign exchange reserves stood at $53.317 billion. The high reserves show the world's confidence in the Indian economy and it also allows the government to prepay a part of its foreign debt, the RBI governor said.

"Whenever the government will gain from prepayment, it will do that. We are also advising it to do so," Jalan said.

India's external debt totalled $100.4 billion at the end of March 2001, up from $98.3 billion the previous year, making it the world's tenth-largest debtor. Of this, short-term debt totalled $3.47 billion.

India's current account surplus for the October-December (2001-02) quarter was $785 million, compared with a deficit of $171 million in the corresponding quarter of the previous year. The third-quarter overall BoP showed a surplus of $3.624 billion.

Delivering the valedictory address at the CII conference, Jalan said the overriding consideration for the monetary environment is liquidity.

"Liquidity should not be a problem both domestically and externally. It is important to create a macro environment where the financial system can absorb capital," he said.

He said domestic interest rates would continue to remain soft but declined to comment on the issue of cutting either the bank rate or the cash reserve ratio.

"Yes, interest rates will continue to remain soft," he told reporters ahead of his speech. Asked whether a cut in either the CRR or the benchmark bank rate was in the offing, Jalan just said, "No comments."

The CRR is pegged at 5.5 per cent while the bank rate is pegged at 6.5 per cent.

Finance Minister Yashwant Sinha on Monday said he expected interest rates to remain soft and said there was scope for a reduction in CRR and the statutory liquidity ratio.

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