Current account deficit falls to $ 5.2 bn in Jul-Sep qtr

India's current account gap narrowed sharply to USD 5.2 billion, or 1.2 percent of GDP, in the July-September quarter of 2013-14 on the back of turnaround in exports and decline in gold imports.

The current account deficit (CAD), the difference between outflow and inflow of foreign exchange, was USD 21 billion, or 5 percent of the GDP, in the second quarter of last fiscal.

"Contraction in the trade deficit coupled with a rise in net invisibles receipts resulted in a reduction of the CAD to USD 26.9 billion (3.1 percent of GDP) in H1 of 2013-14 from USD 37.9 billion (4.5 percent of GDP) in H1 of 2012-13," RBI said in a statement.

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Notwithstanding a lower CAD during April-September (H1) of 2013-14, there was a drawdown of foreign exchange reserve to the tune of USD 10.7 billion as against an accretion of USD 400 million in same period last fiscal mainly due to a decline in net capital inflows under the financial account, it added.

Both the government and RBI are expecting the CAD to be below USD 56 billion in the current fiscal compared to the record high of USD 88.2 billion, or 4.8 percent of the GDP last fiscal.

Besides, pick up in exports, the steps taken by the Reserve Bank and the government have resulted in a sharp decline in gold imports, which was one of the main contributors to high CAD last year.

The government has taken several steps, including hike in gold import duty to 10 percent and restrictions on import of gold bars and medallions, to restrict CAD. It has also taken measures to boost exports, taking advantage of depreciating rupee.

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On a Balance of Payment (BoP) basis, it said, there was a drawdown of foreign exchange reserves of USD 10.4 billion in second quarter as compared to that of USD 0.2 billion in the same period of last fiscal.

Commenting on the CAD, Finance Minister P Chidambaram said it has improved significantly on a quarter-on-quarter basis. During the first quarter of the current fiscal, CAD widened to USD 21.8 billion or 4.9 percent of GDP.

The lower CAD during the second quarter was primarily on account of a decline in the trade deficit as merchandise exports picked up and imports moderated, particularly gold imports, RBI said.

Gold and silver imports in April-October 2013 declined by 12.86 percent to USD 24 billion compared to USD 28 billion in the same period last year. Gold imports have fallen from 142 tonnes in April and 162 tonnes in May. They were at 23.5 tonnes in October, compared with 11.16 tonnes in September, 3.38 tonnes in August and 47.75 tonnes in July.

India imported an estimated 835 tonnes of gold in 2012-13, a key reason for the record current account deficit (CAD) of USD 88.2 billion, or 4.8 percent of GDP. On a BoP basis, merchandise exports increased by 11.9 percent to USD 81.2 billion in second quarter of 2013-14 on the back of significant growth especially in the exports of textile products, leather products and chemicals.

On the other hand, it said, merchandise imports at USD 114.5 billion, recorded a decline of 4.8 percent in July-September period of 2013-14 as compared with a decline of 3 percent in in the year ago period, primarily led by a steep decline in gold imports, which amounted to USD 3.9 billion.

India imported gold worth USD 16.4 billion in first quarter of the current fiscal. As a result, it said, the merchandise trade deficit contracted to USD 33.3 billion in the second quarter of 2013-14 from USD 47.8 billion a year ago.

Net outflow on account of primary income (profit, dividend and interest) amounting to USD 6.3 billion during the period was higher than that in the preceding quarter at USD 4.8 billion. While foreign direct investment recorded net inflows of USD 6.9 billion in the said period, net portfolio investment registered an outflow of USD 6.6 billion in the wake of indication given by US Federal Reserve about the tapering of its quantitative easing programme, it said.

There was a marginal net outflow of USD 0.8 billion under equities while the debt component of net FII flows recorded a higher outflow of USD 5.7 billion, it added.

The RBI said the turnaround in export growth and decline in imports from July 2013 onwards led to a sharp improvement in the trade deficit to USD 83.8 billion in the first half of 2013-14 from USD 91.6 billion in same period a year ago.

Net inflows under the capital and financial account (excluding change in foreign exchange reserves) declined to USD 15.1 billion in H1 of 2013-14 from USD 37.0 billion in H1 of 2012-13 owing to net outflows of portfolio investment.