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The current account deficit widened to 4.6 per cent of gross domestic product (GDP) in the first six months ending September 2012 as export growth slowed more sharply than imports. It is expected to be at around five per cent in 2012-13, more than the 4.2 per cent in 2011-12.
While the government will have to boost exports to improve the current account balance, it needed to take steps in the interim, Chief Economic Advisor Raghuram Rajan said.
"CAD is our biggest concern right now because as you finance from outside, you are dependent on the interest of foreign investors," Rajan said at a convocation ceremony here.
Adding: "They've been supporting so far due to the search for yields. But can we continue to rely on that forbearance? That's the big question for India and we don't want to depend on foreign investors because they could turn."
India aims to contain its fiscal deficit within 4.8 per cent of GDP in 2013-14, lower than the 5.2 per cent achieved in 2012-13, a tad lower than its revised target of 5.3 per cent.
Finance Minister P Chidambaram unveiled a surge in government spending on Thursday, despite expectations of an austerity budget to shore up its finances, imposing new taxes on the rich and large firms to fund a dash for growth ahead of an election due by next year.
However, staking his credibility on meeting the deficit-cutting target, Chidambaram is likely to be forced to scale back spending in the coming financial year after delivering a federal budget that makes aggressive revenue assumptions.
"If you look at the Budget and some of you have studied the Budget in your courses, there is not much scope to cut non-planned spending such as government salaries...the weight of the cuts have to come from plan spending," Rajan said.
