Exuding confidence that current account deficit (CAD) will come down to 3.7 per cent of GDP in 2012-13, Finance Minister P Chidambaram on 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 foreign direct investment (FDI), Foreign Institutional Investors (FII) and to extent necessary and desirable External Commercial Borrowings (ECB). We think that, after looking at the factors, $70.3 billion (3.7 per cent of GDP) will be fully financed by capital flows and substantial part will come from FDI, FII and ECB," Chidambaram said.
In 2011-12, CAD touched a 30-year high of 4.2 per cent of the GDP or $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 ($18.1 billion) in equities so far this year.
During April-July 2012, the Foreign Direct Investment (FDI) inflows dipped to $6.18 billion from $14.6 billion in the same period last year.
Indian companies raised over $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 per cent of GDP. This is higher than 5.1 per cent target set in Budget.
Chidambaram said, "5.1 per cent was very challenging. After looking at all the factors we think 5.3 per cent is doable and we intend to work hard and achieve that."
As per the roadmap, the deficit would be brought down to 4.8 per cent by 2013-14, 4.2 per cent (2014-15), 3.6 per cent (2015-16) and 3 per cent (2016-17).
