Even as the Reserve Bank of India (RBI), on Monday, maintained that reducing the current account deficit (CAD) ‘is a challenge’ and pitched for stable foreign inflows to finance the widening gap, Finance Minister P. Chidambaram asserted that the only way to contain CAD was to increase the domestic production of oil and coal and restrain the consumption of gold.
In his address to members of the Parliamentary Consultative Committee attached to his Ministry, Mr. Chidambaram said the major reason for the country’s large CAD “is that we have huge dependence on import of certain items such as oil, coal and gold” and “in order to increase our production, we must get our policies and priorities right as long-term measures.”
On the meeting’s agenda — the current account deficit: implications and measures to contain the deficit — the Finance Minister told members that the extent of CAD and its financing were the two major concerns, and it was important to finance CAD than to draw from the reserves.
Mr. Chidambaram went on to point out that despite all odds, the government had been able to finance CAD and also added about $3 billion to the foreign exchange reserves in 2012-13. He expressed confidence that during the current fiscal also, CAD would be financed without dipping into reserves.
One of the ways of financing the widening CAD is to raise the foreign direct investment (FDI) limits so as to attract more capital inflows. Towards this end, Mr. Chidambaram said: “The government is looking at FDI caps to see if they are indeed serving the purpose. Otherwise, the caps could be revisited.”
The Finance Minister’s statement at the Parliamentary consultative committee meeting was, in fact, a reiteration of what he had said at his curtain-raiser press conference last week on the slew of reform and decisions in the pipeline. Mr. Chidambaram also told his committee members that the government was “proactively working towards operationalisation of 215 stalled projects involving about Rs 7 lakh crore, with a view to giving a push to the production activity in the country”. Alongside, the Minister conceded that as the world economies are in recession, “we cannot do much on the external factors”.
