Prime Minister Manmohan Singh’s high-powered economic advisory council (EAC) presented their economic outlook projecting current account deficit (CAD) of 1.5%, foreign direct investment inflow of USD 9 billion, and reserve buildup of USD 22.6 billion. Estimating GDP to be USD 900 billion, EAC says that CAD to be USD 20 billion because prior year estimates based on first year projections had always resulted in off-key figures reducing the credibility of the data. Hence, this time around, EAC has used a blanket percentage of GDP approach.
The EAC also noted a better coordinated reporting of balance of payments (BoP) numbers from Directorate General of Commercial Intelligence and Statistics (DGCI&S) and Reserve Bank of India (RBI) by nearly 50% thereby increasing the credibility of the data. The team of experts also informed Singh that for the first time FDI inflows was larger than portfolio capital flow with inflows of USD 12 billion and outflows of USD 3 billion.
Another heartening feature in the BoP outlook is that for the first time in several years, net FDI is projected to be larger than portfolio capital flow. Net FDI this year will be around $9 billion, up from $4.7 billion last year. The net figure results from in-bound FDI of around $12 billion and out-bound FDI of $3 billion. In addition, they predict that there will be an accretion to reserves by nearly 50% to USD 22.6 billion of which USD 8.6 billion has already been absorbed in the economy in the first half and another USD 6-7 billion has already come in the third quarter.