India's finance minister will seek to drum up foreign investment from the United States and Canada this week to fund a record high current account deficit, even as policymakers debate the risks of over-reliance on foreign investors to finance the gap.
As P Chidambaram kicks off a week-long North America trip, his officials are working on a series of steps to attract at least US$20 billion in new investment to fund the deficit without depleting India's $300bn in foreign exchange reserves.
The proposals include raising the cap on foreign investment in rupee-denominated government debt by up to $5bn, reducing tax rates on such investments, making it easier for Indian firms to borrow abroad, and easing curbs on foreign investment in sensitive sectors such as defence, telecoms and media, finance and trade officials said.
The measures are still being formulated and have not been approved, the officials stressed.
Mr Chidambaram, aiming to take advantage of a wave of cheap global funds, will meet foreign investors in New York, Ottawa and Toronto, the latest stops in a global roadshow to talk up India as an investment destination.
The new push for foreign investment is seen as part of an important but potentially risky shift in how India approaches its widening current account deficit, which has emerged as the government's biggest economic worry.
"We will take all steps to ensure that inflows remain strong for the next two years," Indian prime minister Manmohan Singh told a gathering of industrialists in New Delhi earlier this month.
The new push for foreign investment stems from India's struggle to boost its merchandise exports in a fragile global economy and rein in a high import bill. The government is now willing to tolerate a current account deficit of 5 per cent, roughly double what it has typically aimed for, the finance ministry officials said.
India's current account deficit widened to an all-time high of 6.7 per cent of GDP in October-December, driven by heavy oil and gold imports and muted exports.
* Bloomberg News
