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India need consistency in FDI policy to bridge CAD gap: S&P

By PTI | 4 May, 2013, 10.04PM IST
GREATER NOIDA: Global rating agency Standard and Poor’s today said India needs a consistent FDI policy for various sectors including retail to finance current account deficit (CAD).

“Making clear the FDI regime (including the one for) the retail sector is essential because that (will provide) the sort of capital you (need) to attract to finance CAD,” S&P’s Chief Economist Asia Pacific Paul Gruenwald said during a press conference at the ADB annual meet here.

He further said “getting clarity in regime, getting investors to make longer-term commitment into the country… will help the sustainability of external position.”

India, he added, needed a regime where “you get that class of investors who can put their money for a longer term. It is not about easing the limits, it is about going back and forth (in policy). The investor community thinks one thing is going to happen then something else happens. It is more of the consistency on the policy that is important.”

India also needs to focus on long-term foreign direct investment, which is sticky, he said, adding, bringing down CAD to 3 per cent of GDP was possible. He further said the fiscal deficit target of 3 per cent by 2016-17 is achievable.

The CAD, which is the difference between the outflow and inflow of foreign currency, touched a record high of 6.7 per cent in the October-December quarter of 2012-13.

Gruenwald said India would grow at 6 per cent in the current fiscal, but the possibility of a downside is high.

“Our best estimate for Indian growth is 6 per cent. But the risk is tilted towards the downside,” he said, adding, India’s reliance on domestic demand for growth would help it ward off the shocks of recession in the US and Eurozone.

“India is not very reliant on the Euro and US for exports. To generate its GDP it is reliant on domestic markets,” he said, adding a 7-8 per cent economic growth is achievable in India.

Commenting of the scope of monetary policy easing by the central bank, Gruenwald said: “We don’t see super-aggressive cut by RBI this year.”

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