Planning Commission deputy chairman Montek Singh Ahluwalia on Thursday expressed confidence that the country can finance a current account deficit (CAD) of 3%. CAD touched 4.3% of GDP during the last quarter 2011-12.
"We are seen as a fast growing economy and it has that potential. As long as that message is conveyed and people recognise that we welcome foreign investment and portfolio investment, I don't think it would be difficult to finance it (a 3% CAD)," Ahluwalia said.
A CAD of 3% is sustainable and can be financed by a steady inflow of FDI and institutional investment through portfolio flows, he said while addressing students of the Tata Institute of Social Sciences on their convocation day here.
The CAD represents the difference between exports and imports after considering cash remittances and payments.
On the back of record rise in imports, the country was left with a trade deficit of $185 billion last fiscal, despite exports also overshooting its target by a few billion dollars at $303 billion.
This had a debilitating impact on the CAD position which nearly doubled to 4.3% of GDP in Q4 of the last fiscal against 2.7% for the entire FY11.
"I personally feel that we should be able to finance the CAD at 3% of GDP provided we are seen as a country that is growing rapidly, that's the critical thing. We have to address many issues like power, fuel subsidies, etc (to give out that message)," he said.
He reiterated his call to deregulate oil prices as also allowing FDI in aviation and multi-brand retail, saying energy prices have to be aligned with economic realities as otherwise one will never see energy efficiency being pursued.
On the growth prospects, he said even without any fresh dose of reforms, the economy can grow at 9% or more.
"I believe with the structure that we have, it is possible to grow at 9%, even if no new reforms are done immediately. (But the) most important thing is to take care of these executive decision-making issues," he said.