Prime Minister Manmohan Singh said on Wednesday that the government will make every effort to woo foreign investment to bring down the Current Account Deficit (CAD) which is estimated at 5% of GDP in the 2012-13, twice the comfort level.
"Fiscal expansion has led to an expansion in the current account deficit which is expected to be around 5% of GDP. This is more than twice the traditional comfort level of say 2.5%," Singh said while addressing the annual general meeting of Confederation of Indian Industry (CII) in New Delhi.
The CAD, which is the difference between the outflow and inflow of foreign currency, had touched a record high of 6.7% in the December quarter mainly on account of higher gold and oil imports and slowdown in exports.
"We can expect some reduction from this level in 2013-14, reflecting the lower fiscal deficit targeted in the Budget and also the lower subsidies on petroleum products.
"However, this reduction will be modest initially. We must therefore plan to finance a higher than normal current account deficit for a few years," Singh said.
During April-December 2012, CAD stood at $71.7 billion accounting for 5.4% of GDP as against $56.5 billion (4.1% of GDP) in the same period in 2011.
He said the government was able to finance CAD of over $90 billion in 2012-13 without a loss in forex reserves. "We will take all steps to ensure that inflows remain strong for the next two years," he said, adding the country has to learn to cope with higher CAD and weak exports.
Finance minister P Chidambaram has been touring important financial centres across the globe to woo investors and has visited Singapore, Japan, Hong Kong in this regard. He is scheduled to travel to US later this month.
The government has already constituted an eight-member panel, headed by economic affairs secretary Arvind Mayaram, for giving clear definitions to FDI and FII, a move aimed at removing ambiguity in the types of foreign investments.