Govt seeks to boost inflows to tackle current account gap

BT Online Bureau    New Delhi   Last Updated: April 3, 2013  | 19:29 IST

Tags: CAD | Economy | Gold | Oil | Current Account Deficit | Manmohan Singh

Prime Minister Manmohan Singh at the annual general meeting and national conference of the Confederation of Indian Industry (CII) in New Delhi on April 3, 2013. (Photo: Reuters/Adnan Abidi)

Prime Minister Manmohan Singh on Thursday said the government will take steps to boost foreign investment in an effort to bring down to current account deficit (CAD).

The current account gap, which is the difference between the outflow and inflow of foreign currency, had touched a record high of 6.7 per cent in December quarter mainly on account of higher gold and oil imports and slowdown in exports.

"We can expect some reduction from this level in 2013-14, reflecting the lower fiscal deficit targeted in the Budget and also the lower subsidies on petroleum products," the prime minister said addressing a CII meet.

He however cautioned that the reduction in current account deficit would be modest initially so "we must therefore plan to finance a higher than normal current account deficit for a few years".

For the fiscal year ended March 31, 2013, he sees the current account deficit level at around 5 per cent, which, he says, is twice the traditional comfort level of 2.5 per cent.

During April-December 2012, CAD stood at $71.7 billion accounting for 5.4 per cent of GDP as against $56.5 billion (4.1 per cent of GDP) in the same period of 2011.

He said the government was able to finance CAD of over $90 billion in 2012-13 without a loss in forex reserves.

"We will take all steps to ensure that inflows remain strong for the next two years," he said, adding the country has to learn to cope with higher CAD and weak exports.

Finance Minister P Chidambaram has been touring important financial centres across the globe to woo investors and has visited Singapore, Japan, and Hong Kong.He is scheduled to travel to US later this month.

The government has already constituted an eight-member panel, headed by Economic Affairs Secretary Arvind Mayaram, for giving clear definitions to FDI and FII, a move aimed at removing ambiguity in the types of foreign investments.

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