Can high Current account deficit be good?

http://economictimes.indiatimes.com/opinion/editorial/indias-short-term-debt/articleshow/7567757.cms

The Prime Minister's Economic Advisory Council talks of stabilising the CAD at 2-2 .5% of GDP. But we think even 3% is entirely bearable for an economy growing at over 8%, with exports growing at over 30%, remittances bringing in 4% of GDP, and domestic savings hovering around 35%. 

These factors add up to a dynamic, sustainable macroeconomic situation, notwithstanding long-term worries about the fiscal deficit. FDI is more stable than portfolio investment, so we need a better investment climate to revive FDI, which has fallen this year. 

History shows that running a large current account deficit is dangerous if domestic savings are low and exports are sluggish (Greece, Portugal), or if countries borrow abroad for reckless lending at home (Ireland and Iceland in 2008, Thailand, Indonesia and Korea in 1997). In a crisis, short-term loans cannot be rolled over and hence suck out reserves. Lesson: India should focus on the composition of borrowings more than the current account deficit. 

Forget fears that hot money will rush in and out of the stock market. If FIIs attempt a mass exit from bourses, they will cause a price crash that imposes a huge exit penalty. Bonds too will fall in a panic, and anyway bond inflows are limited by RBI rules. 

Long-term loans are by definition not a short-term problem. History shows that the most lethal problem is short-term borrowing. Its share in India's external debt rose from 18.8% to 22.5% between March and September 2010. This is where the RBI needs to watch and exercise caution. A lot of corporate debt is used to finance foreign takeovers. This constitutes a liability for the country, whereas the assets lie abroad out of the RBI's control. 

The RBI needs to keep an eye on this too. Yet as of now the situation is well under control. A current account deficit of up to 3% of GDP will prove that India has more absorptive capacity than before, and be a sign of health rather than cause for panic. It is the build-up of short-term debt that the RBI and policymakers need to worry about.