The government today pegged the economic growth rate at a 'conservative' 8.75 per cent for this fiscal, and cautioned against contagion effects of the financial crisis in Europe which accounts for 36 per cent of India's exports.
Improvement in exports is essential to bring down current account deficit, which is pegged at 3 per cent of GDP or up to 56 billion dollars and is not sustainable for long term, Finance Minister Pranab Mukherjee said at the annual general meeting of industry chamber Assocham.
Current account deficit (CAD) represents movement of money out of a country on net basis, barring capital flows.
CAD surged 3-fold to 13.7 billion dollars in the first quarter of this fiscal over the same period last year due to higher imports because of economic recovery and larger payments overseas for certain services.
"Current account deficit would be around 3 per cent of GDP and in absolute terms, perhaps around 55-56 billion dollars (this fiscal and) cannnot be maintained for a very long period of time," Mukherjee said.
"Therefore, recovery of exports is absolutely necessary and those are linked with global developments," he added.
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Mukherjee said 36 per cent of India's exports go to Europe and if the sovereign debt crisis in Europe turns contagious and spreads, the country will not be able to immediately find new markets.
"Unless there is robust recovery in Europe, immediately we cannot shift our market and improve international trade scenario," Mukherjee said.
After engulfing Greece, Portugal and Spain, financial mess has unfolded in Ireland.
Mukherjee also highlighted the need to work together with other countries to build pressure against protectionist measures.
"We cannot live in cocoon, we cannot live simply by raising protectionist measures," he said.
The Finance Minister was, however, confident that the economy would grow by 8.75 per cent this fiscal, a conservative estimate given a healthy 8.9 per cent growth in the first half.
"I am a bit conservative so I would be happy if it is 8.75 per cent," he said.
This estimate is not only lower than what was witnessed in the first half, but also of the upper end of over 9 per cent forecast in Mid Year Analysis, tabled by the Finance Minister himself.
Mukherjee said because of the stimulus, fiscal deficit widened to over 6.4 per cent last fiscal, but exuded confidence that it would be pruned to 5.5 per cent this fiscal, as is projected in the Budget.