India’s current account deficit narrows to 1.2% of GDP in July-September quarter' 2013

03 Dec 2013 Evaluate

In a big sign of relief to Indian policymakers concerned over the deteriorating macro-economic indicators of the country, Indian Current Account Deficit (CAD) narrowed sharply to $5.2 billion, or 1.2 percent of GDP, in the July-September quarter of this fiscal mainly on the back of decline in gold imports and turnaround in exports. During the first half of current fiscal, country’s CAD contracted to $26.9 billion or 3.1 percent of GDP as against $37.9 billion or 4.5 percent of GDP in the corresponding period of previous fiscal.

The decline in CAD was mainly attributed to Indian authorities like the Government and the Reserve Bank of India (RBI) which have been taking a lot of measure to contain the imports and expand country’s exports. Gold and silver imports in April-October period of 2013 declined by 12.86 percent to $24 billion compared to $28 billion in the same period last year. Recently, the government has hiked gold imports rate to 15% and the RBI also introduced 80/20 rule under which 20% of all gold imports by importers has to be re-exported.

On the other hand, value of exports increased by 6.32% to $179.38 billion during April-October, 2013 as against $168.71 billion in the corresponding period of last year. On exports front, the government has announced several export boosting measures like sops for exports orientated Special Economic Zones (SEZs). Further, Country’s exports has also got support from reviving demand in the US and European markets as they contribute to around 30% of India’s overall shipments overseas and weakness in domestic currency which has improved competitiveness of Indian exporters. However, country’s net portfolio investment registered an outflow of $6.6 billion amid rising concerns over the US Fed taping of its quantitative easing programme. There was a marginal net outflow of $0.8 billion under equities while the debt component of net FII flows recorded a higher outflow of $5.7 billion.

Applauded over the better than expected CAD for the Q2FY14, both the government and RBI are expecting the CAD to be remained below $56 billion in the current fiscal as compared to the record high of $88.2 billion, or 4.8 per cent of the GDP last fiscal. The significant reduction in CAD benefits the country a lot on macro-economic front as it is a major macro-economic problem that has created huge volatility in the domestic equity markets and currency.

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