Govt aims to bring down CAD to 2.5% by 12th Plan-end: Montek

Govt aims to bring down CAD to 2.5% by 12th Plan-end: Montek Greater Noida: The government aims to bring down current account deficit (CAD) to about 2.5 percent of the GDP by March 2017, Planning Commission Deputy Chairman Montek Singh Ahluwalia said Sunday.

"..Current account deficit, which (we aim to bring down) from 4 percent of GDP going down to about 2.5 percent by the end of 12th Plan (2012-17)," he said while speaking on 'Mobilising Long Term Financing for Infrastructure' on the concluding day of 46th Annual Meeting of the Asian Development Bank (ADB) here.

CAD represents the difference between inflows and outflows of foreign currency. It had touched a record high of 6.7 percent in the December quarter of last fiscal year. The CAD in 2012-13 fiscal is likely to be around 5 percent of the GDP.

Describing the high CAD as "by far the biggest risk to the economy", RBI had last week said in its annual monetary policy for 2013-14 that "monetary policy will also have to remain alert to the risks on account of the CAD and its financing, which could warrant a swift reversal of the policy stance".

Ahluwalia said the government aims to finance the CAD as much as possible through foreign direct investment and through portfolio inflows and as little as possible through debt.

He said the government is making efforts to bring the defict down in a phased manner.

He also said that there is a need to channelise domestic savings into long-term infrastructural projects, but high fiscal deficit is also a hindrance.

On fiscal deficit he said: "The critical issue is that is the size of the fiscal deficit. It would be very difficult to have system that molbises lot of financial savings if the fiscal deficit remains high."

He said government always prefer borrowing in its own currency.

Although infrastructure projects can be financed through foreign debt it makes sense to that the debt should be in rupee denomination as the revenue generated through such projects are essentially in domestic currency.

"So there is a lot that need to be done to enable...An environment that makes domestic debt make available."

He said institutions such as ADB and other multilateral bodies can play a useful role in making available funds for infrastructural projects.

He said in the medium term government is focusing to bring the fiscal deficit under control.

The Finance Ministry has recently said the fiscal deficit for 2012-13 will be better than the estimated 5.2 percent as an overall tax collection of over Rs 10.38 lakh crore has been achieved.

PTI