India may have to draw about $9 billion from its foreign exchange reserves to finance current account deficit this year, Prime Ministry's Economic Advisory Council (PMEAC) Chairman C Rangarajan said on Friday, while pitching for promoting foreign investment and exports to deal with problem in the long run.
He further said fiscal deficit is a concern too and suggested raising domestic oil prices to restrict it to the budget target of 4.8 per cent of the GDP in this fiscal year.
"Controlling current account deficit remains the main concern at present. On the assumption that total current account deficit will be $70 billion and the net capital inflows that we have estimated (about $61 billion), there will be a drawdown on the reserves of about $9 billion," Mr Rangarajan said.
He also expressed the hope that current account deficit will even fall below $70 billion if the capital inflows picks up.
"Additional focussed steps to increase net capital inflows can result in up to $10-15 billion more inflows during the year, ramping it up to over $75 billion, which, in combination with a restrained current account deficit, would enable some reserve rebuilding," the PMEAC chief said.
The current account deficit was not fully financed in 2011-12 and the country had to run down reserves by $12.8 billion.
India, however, had fully financed its record current account deficit of $88.2 billion last fiscal year and even added $3.8 billion to the foreign exchange reserves.
Finance Minister P Chidambaram had been maintaining that India would be able to fully finance current account deficit this year as well.
"This year we will contain the current account deficit to $70 billion or below and we will fully finance it," he said in the Lok Sabha on August 27.
The economic outlook report for the fiscal prepared by PMEAC stressed a focused strategy to improve export competitiveness to take advantage of rupee depreciation to bring down the current account deficit.
While releasing the report, Mr Rangarajan pitched for simplifying export-related procedures and boost domestic coal production.
Other steps suggested by the council, include reduction in oil subsidies to make them more price elastic and pro-active implementation of modified gold deposit scheme.
With regards to foreign investment, Mr Rangarajan stressed on stable, non-reversible policy regime besides early resolution of transfer pricing issues.
PMEAC also suggested additional steps to increase net capital inflows.