India needs a plan to tackle a record current-account deficit and the government will take steps to boost investment flows from abroad, Prime Minister Manmohan Singh said today.
The shortfall in the broad gauge of trade flows probably widened to 5 percent of gross domestic product in the year ended March 31, he told delegates at a conference organized by the Confederation of Indian Industry in New Delhi. The latest data from the central bank last month showed the gap was $32.6 billion in the quarter to Dec. 31, or 6.7 percent of GDP.
“Fiscal expansion has led to an expansion in the current- account deficit,” Singh said. “This is more than twice the traditional comfort level of, say, 2.5 percent.”
Singh’s administration liberalized rules for foreigners buying rupee bonds from April 1 as it pursues policy changes to revive a faltering economy, including opening up aviation and retail industries to attract more investment. India may need more than $75 billion of foreign capital this year and next to fund the deficit, Finance Minister Palaniappan Chidambaram said in an interview last month.
The rupee, which has lost about 6.4 percent in the past year against the dollar, weakened 0.2 percent to 54.38 as of 12:56 p.m. in Mumbai, according to data compiled by Bloomberg. The benchmark S&P BSE Sensex fell 0.5 percent. The benchmark 10- year bond yield slipped 3 basis points, or 0.03 percentage point, to 7.97 percent.
The shortfall will narrow this year as the government takes measures to boost economic growth, attract foreign investment and cut subsidies, Singh said. The government financed a deficit of $90 billion last year through flows without depleting foreign-exchange reserves, he said.
The trade deficit may have been as much as $196 billion in the year ended March 31, Commerce Minister Anand Sharma said at the same conference, compared with $184.6 billion last year.
India’s exports climbed 4.2 percent in February after declining over most of 2012 as Europe’s debt crisis curbed overseas sales. The government plans to provide incentives to exporters in its annual trade policy to be announced April 18.
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