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The government would lower the current account deficit (CAD) to 3.7 percent of the gross domestic product (GDP) in the current financial year by cutting imports, especially of gold, silver, oil and non-essential items, Finance Minister P. Chidambaram said Monday.
Chidambaram said his ministry in consultation with the Reserve Bank of India and other ministries including commerce and oil, had outlined a plan to contain CAD at $70 billion in the current financial year.
"If the CAD (current account deficit) is contained at $70.0 billion, it will amount to 3.7 percent of GDP as against 4.8 percent in 2012-13," Chidambaram told a media conference.
India's current account deficit has surged to a record high of $88.2 billion, or 4.8 percent, of the country's GDP.
Earlier, in a statement in the Lok Sabha, the lower house of Parliament, Chidambaram said the government was confident of fully financing the current account gap.
"In 2011-12, while financing the CAD, we had to draw upon reserves to the extent of $12.8 billion. Last year, we had a larger CAD at $88.2 billion. Nevertheless, we were able to fully and safely finance the CAD, and do even better. We added $3.8 billion to the reserves," he said.
Chidambaram said the recent volatility in the currency markets was largely due to the growing concerns over the CAD.
"This year too, investors and analysts have raised concerns about the CAD. Their concerns are reflected in the pressure on the exchange rate," he said.
"The RBI has taken a number of measures to increase the interest rate at the short end and this has contained the depreciation of the rupee to some extent. However, we believe that we have to do more to contain the CAD, to reduce volatility in the currency market and to stabilise the rupee," he added.
Chidambaram said the government would take measures to lower imports of oil, gold, silver and certain non-essential items.
The government also plan measures to enhance capital inflows that will help reduce the current account gap.
According to the finance minister, these measures include issuance of quasi-sovereign bonds to finance long term infrastructure, liberalising of external commercial borrowings guidelines and making non-resident deposit schemes more attractive.