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Rediff.com  » Business » $70 billion inflows a year can bring deficit down to 2.3%: Rangarajan

$70 billion inflows a year can bring deficit down to 2.3%: Rangarajan

October 04, 2012 17:56 IST

Indian flagIndia needs net capital inflows of up to $70 billion annually for the next five years to bring current account deficit down to 2.3 per cent of gross domestic product, Prime Minister's Economic Advisor C Rangarajan said on Thursday.

"To sustain 2.3 per cent CAD over the medium-term, we would need net capital inflows of at least $50-70 billion annually over the next five years.

"Given the uncertainty around both the push factors (rising global risk aversion) as well as pull factors (slow growth here) that determine capital inflows, attracting such a magnitude of inflows could very well be an uphill task," said the chairman of PM's Economic Advisory Council while delivering a lecture in Mumbai on Thursday.

However, the former Reserve Bank Governor said there is an expectation of the CAD to be around 3.5 per cent of GDP in the current fiscal.

Blaming the merchandise trade deficit as responsible for the higher CAD of 3.9 per cent in the first quarter of the fiscal, Rangarajan said "we should also aim at reducing the trade deficit to 6 per cent from the current 10 per cent".

Current account deficit occurs when a country's total imports of goods, services and transfers is greater than the country's total export of goods, services and transfers.

He said it may not be possible immediately to bring CAD down to 2.3 per cent but expressed confidence it can come down to 2 per cent of GDP in the next six to ten years.

The government is looking at a CAD figure of below 2 per cent.

Rangarajan said to sustain the CAD at a comfortable level of 2.5 per cent of GDP, the country will require capital flows of $50-70 billion per year for the next five years.

The CAD, or the imbalance between foreign exchange earned and foreign exchange expended, stood at 3.9 per cent of GDP in the first quarter of FY13, but better than 4.5 per cent recorded during Q4 of FY12 on the back of slowing imports. CAD stood at 4.3 per cent in FY12.

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