Current account deficit: Once a CAD, now a hero

Mar 06 2014, 18:33 IST
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CAD for the third qtr of the fiscal narrowed sharply to just $4.2 billion or 0.9% of GDP. CAD for the third qtr of the fiscal narrowed sharply to just $4.2 billion or 0.9% of GDP.
SummaryCAD for the third quarter of the fiscal narrowed sharply to just $4.2 billion or 0.9% of GDP.

$3.3 billion in the quarter compared with $17.8 billion in the corresponding quarter a year ago and $3.9 billion in the second quarter of the current fiscal. In January, gold imports fell an annual 77%, implying that that the imports remain curbed, although rampant smuggling of gold has been noticed in recent months.

Besides the fall in imports, an increase of 7.5% in merchandise exports to $79.8 billion also helped bring down the CAD in the third quarter. Exports are seen to pick up gradually in the coming month.

The rupee closed at 61.75 versus Tuesdayís close of 61.85 per dollar

Foreign investors continued to reap good returns on investments into Indian companies and so, outflows through investment income was $6.56 billion in the quarter under review. Inflows through remittances were $15.7 billion during the quarter, largely unchanged from the previous quarter.

A large part of the accretion to forex reserves in the third quarter was because of the huge inflows garnered in NRI deposits after the RBI opened concessional swap windows for banks. NRI deposits fetched a net $21.4 billion during October-December, up from $2.7 billion a year ago.

However, dollar inflows through portfolio that comprises of equity and debt investments were a trickle at $2.4 billion. A year go, portfolio flows had been as high as $9.8 billion. Also, external commercial borrowings and bank capital saw an outflow of $1.7 billion as against an inflow of $5.75 billion a year ago.

Foreign direct investment inflows have more than doubled to $6.07 billion in December quarter compared with just $2.11 billion a year ago.

Indiaís foreign exchange reserves comprise foreign currency assets, gold, SDRs and reserve tranche position in the IMF. The reserves, which stood at a measly $5.8 billion at end-March 1991, rose to $315 billion at end-May 2008. The global financial meltdown and all-round economic crisis that ensued adversely impacted the reserves, which shrank to $279 billion at end-March 2010, but only to rise again to $305 billion at end-March 2011 and further to an all-time-high of $322 billion at end-August 2011. The reserves stood at $293 billion as on February 21.

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