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Think long term for funding CAD

Friday, 23 August 2013 - 7:53am IST | Agency: dna

For the last 20 years, high GDP growth in India has been the product of slow but steady reforms. Under the UPA-II that process has substantially stalled. Worse, in the defence of the rupee, we have been quite willing to reverse reforms.

These things have raised basic questions about the Indian growth story. Optimism has been damaged by recent decisions that reverse economic reforms.

Is this crisis comparable to 1991? No. In 1991, the Foreign Exchange Regulation Act was in force. We had a closed capital account. The only method for financing the current account deficit (CAD) was borrowing by the government.

When the government lost its creditworthiness, the financing choked.

But we need to lay sound a long-term framework for financing the CAD, which requires a capital inflow of roughly Rs 2,000 crore per working day. Fiscal prudence will help diminish the deficit.

Let us not lose sight of our fundamentals. We have enlightenment values, good demographics, English, a sophisticated elite and a great upside through bringing in the best technology. For decades to come, times will be good in India.

(As told to Ashutosh Kumar)

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