Wednesday, February 22 2006 15:21 Hrs (IST) - World Time -

New Delhi: Expressing concern over the divergence in trade data compiled by RBI and government, the Prime Minister's Economic Advisory Council today (Feb 22 2006) sought more transparency in the published data to inspire investors' confidence and said the current account deficit at less than 3 per cent for 2005-06 was still in the comfort zone.

The EAC in its report on Balance of Payments (BoP) to Prime Minister Manmohan Singh attributed the divergence in trade data of Directorate General of Commercial Intelligence and Statistics, which functions under the Commerce Ministry, and Balance of Payments by Reserve Bank of India largely to one-off payments for defence and civilian aircraft imports.

The Council, however, said: "It may be useful to be as transparent as possible in the published data in the public domain so as to manage expectations on the BoP outlook which is important to inspire the trust and confidence of potential investors, both domestic and foreign."

The report projected the current account deficit (CAD) for 2005-06 at 2.9 per cent of GDP, but observed that though it was appropriate for an economy of India's size with vast investment needs to be running a CAD, its size and composition warrant continuous monitoring.

"At almost 3 per cent of GDP, the current account deficit may still be in the comfort zone provided it goes to finance productive investment," it said.

EAC, Chaired by C Rangarajan

The EAC, chaired by C Rangarajan, noted that if the CAD is calculated using the DGCIS trade data, it would amount to only 0.3 per cent of GDP whereas it goes up under the RBI data to 2.9 per cent of GDP.

"During the current year, trade deficit under the DGCIS data is projected at 5.2 per cent of GDP compared to 7.7 per cent under the BoP data thereby widening the divergence to 2.5 percentage points of GDP. This results in a corresponding divergence in the Current Account Deficit (CAD) as well," the EAC report said.

The Council said although capital flows may decline marginally from 4.5 per cent to 4.1 per cent of GDP, but they are likely to be large enough this fiscal to fully bridge the current account deficit and leave a margin of 10.7 billion dollar as net accretion to reserves.

Invisibles continued to be buoyant, it said, adding that net invisibles are projected to increase from 4.5 per cent of GDP last year to 4.8 per cent during this financial year.

"The larger estimated outflow under investment income this year compared to last year, partly owing to the payout of accumulated interest on India Millennium Deposits in December 2005, will be more than offset by increases in software exports and remittances," the council said.