Capital flows to be adequate to fund 3.7% CAD in 2012-13: FM
New Delhi: Exuding confidence that current account deficit (CAD) will come down to 3.7 percent of GDP in 2012-13, Finance Minister P Chidambaram Monday said overseas capital flows would be sufficient to bridge the gap in inflow and outflow of foreign funds.
"If you want to finance CAD, we must attract FDI, FII and to extent necessary and desirable ECB. We think that, after looking at the factors, USD 70.3 billion (3.7 percent of GDP) will be fully financed by capital flows and substantial part will come from FDI, FII and ECB," Chidambaram told reporters here.
In 2011-12, CAD touched a 30-year high of 4.2 percent of the GDP or USD 78 billion. CAD occurs when country's total imports and transfers are higher than its total exports and transfers.
"Policy decisions can influence three main heads -- FDI, FII and ECB -- which is why we lay emphasis on attracting more FDI, FII and ECB," he said.
Chidambaram said that remittances and short-term borrowings could also help finance the CAD. "Fortunately remittances are good at this point. But there can be no policy decision that can influence remittances. It is the growth of economies in countries where India work that will decide how much they will save," he said.
Foreign Institutional Investors (FIIs) have been bullish on India and have invested Rs 94,337 crore (USD 18.1 billion) in equities so far this year.
During April-July 2012, the Foreign Direct Investment (FDI) inflows dipped to USD 6.18 billion from USD 14.6 billion in the same period last year.
Indian companies raised over USD 2.36 billion from overseas markets in September by way of External Commercial Borrowings (ECBs) and Foreign Currency Convertible Bonds (FCCBs).
To attract more FDI into the country, the government had last month liberalised foreign investment norms in retail, pension, insurance, information and broadcasting sectors.
Chidambaram said the government is determined to address the twin challenges of CAD and fiscal deficit.
Unveiling the roadmap for fiscal consolidation, he said he expects the fiscal deficit for the current year to be 5.3 percent of GDP. This is higher than 5.1 percent target set in Budget.
Chidambaram said, "5.1 percent was very challenging. After looking at all the factors we think 5.3 percent is doable and we intend to work hard and achieve that."
As per the roadmap, the deficit would be brought down to 4.8 percent by 2013-14, 4.2 percent (2014-15), 3.6 percent (2015-16) and 3 percent (2016-17).
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