Capital flows to be adequate to fund 3.7% CAD, says FM

 Claiming that overseas capital flows would be sufficient to bridge the gap inflow and outflow of foreign funds, Finance Minister P Chidambaram on Monday said that current account deficit (CAD) will come down to 3.7 per cent of GDP in 2012-13.

"If you want to finance CAD, we must attract FDI, FII and to extent necessary and desirable ECB. We think that, after looking at the factors, the projected CAD of $ 70.3 billion (3.7 per cent of GDP) in 2012-13 will be fully financed by capital flows" Chidambaram told reporters here.

“Any moderation in CAD would be welcome. The Government is confident that the CAD will be fully financed by capital inflows and expects that a substantial part of it will be in the form of FDI, FII and ECBs”, he 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.

The Minister 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.