Current Account Deficit (CAD) is likely to stay around 3.5 to 3.6 per cent of the GDP this year, according to C. Rangarajan, Chairman of the Economic Advisory Council to the Prime Minister.
India needs to be more pro-active in attracting capital flows to cover CAD as fundamentally foreign investors look for profitability and stability to invest in the markets, he said at the ECGC Business Commencement Commemorative Lecture.
According to him, India will need $50-70 billion net capital inflows every year over the next five years to sustain a CAD of 2.3 per cent.
“Sustainable level of CAD is what we should work towards. We should move towards getting it down to 2 or 2.3 per cent over next five years,” he said.
“In order to reduce trade deficit, we must expand our exports. In the short term, we must encourage capital flows and in the long term we must accelerate exports, reduce import growth and trade deficit,” he said.
Rangarajan said we need to work towards getting the subsidy bill as a proportion of GDP within reasonable limits.
“Subsidy should be brought down as a percentage of GDP from 2.4 per cent of GDP to 1.7 per cent of the GDP, though, some amount of subsidies is required in our country,” he said.
He also suggested that services exports must remain at the current levels as they are doing well at present and helping moderate trade deficit.
“The surplus on service account is about four per cent of GDP. In order to get a CAD of about 2.3 per cent, we need to bring down our trade deficit to six per cent from current 10 per cent,” he said.