With the current account deficit reaching alarming levels, Prime Minister Manmohan Singh has said he will take ‘all steps’ to ensure strong foreign exchange flows. He announced a timeline for certain key decisions for infrastructure sector which, the government hopes, will attract heavy foreign investments.
“We financed a CAD (current account deficit) of over $90 billion in 2012-13 without a loss in our foreign exchange reserves. We will take all steps to ensure that inflows remain strong for the next two years. I believe a well-managed Indian economy, seen to be back on a high-growth path, can attract continuing capital flows of this order,” Singh said in his address to the annual general meeting of industry body CII.
The CAD reached a record 6.7 per cent of GDP in the third quarter (October-December) of 2012-13 from 5.4 per cent in the second quarter. There is considerable speculation that the country might borrow from multilateral agencies to bridge the gap, but the Finance Ministry has strongly denied this.
The Prime Minister felt that fiscal expansion has led to the rise in CAD. The deficit is expected to be around 5 per cent for 2012-13. “This is more than twice the traditional comfort level of, say, 2.5 per cent. We can expect some reduction in 2013-14, reflecting the lower fiscal deficit targeted in this year's Budget and also the lower subsidies on petroleum products. But this reduction will be modest initially. We must, therefore, plan to finance a higher-than-normal current account deficit in our Balance of Payments for a few years,” Singh said. To re-energise the economy, the Prime Minister announced a slew of measures for the oil, coal and power sectors.
Infra Push
“The most important thing we can do to revive the investment climate domestically is to deal with the many impediments affecting the implementation of infrastructure projects,” he said. He was much encouraged by clearances of five oil blocks by the Cabinet Committee on Investment and resolving issues related to NTPC’s North Karanpura Project in Jharkhand involving an investment of Rs 14,000 crore and capacity creation of 2,000 MW.