CAD in India plunges to $5.2 bn as exports rise, gold imports decline in quarter

Dec 02 2013, 20:56 IST
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RBI said that low CAD was primarily on account of a decline in the trade deficit. Reuters RBI said that low CAD was primarily on account of a decline in the trade deficit. Reuters
SummaryAfter GDP and manufacturing numbers, CAD data too has spelt good news for Indian economy.

Current account deficit (CAD) in India narrowed sharply to $5.2 billion, or 1.2 per cent of GDP, in the July-September quarter (Q2) 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 per cent 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 per cent of GDP) in H1 of 2013-14 from USD 37.9 billion (4.5 per cent of GDP) in H1 of 2012-13," RBI said in a statement.

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 per cent 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 per cent 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.

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 per cent 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 per cent to USD 24 billion compared to

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