Underscoring the Reserve Bank of India?s (RBI) worries over the external sector, India?s current account deficit (CAD) ballooned to 6.7% of gross domestic product in the October-December quarter of 2012-13, a 61% jump year-on-year. The deficit surpassed the most pessimistic estimate of 6.4%, widening to $32.63 billion on the back of weak exports and a moderation in private transfers ? up from $20.16 billion a year ago and $22.63 billion in July-September.

The country?s trade deficit rose to a record $59.6 billion from $48.6 billion a year ago as exports were flat, while imports grew 9.4%. ?On a BoP (balance of payments) basis, merchandise exports did not show any significant growth in Q3 of 2012-13 as compared with a 7.6% growth in Q3 of 2011-12,? said the RBI in the release.

The finance ministry said admitted that the record high current account deficit was ?large? but said it was ?not surprised? by the data. The ministry said in a statement that ?the RBI and the government will continue to monitor the CAD and will take additional steps whenever warranted?.

In the first 11 months of 2012-13, exports declined by 4%. Exports of services fell by 2% y-o-y in the third quarter of FY13, driven down by software services.

In contrast, imports including the non-productive gold imports continued to grow at a faster rate. Gold imports stood at $17.55 billion, a jump of 58% from July-September and a growth of 38% over the third quarter of FY12.

The government has hiked the import duty on gold three times over the last one year to curb the demand for the yellow metal ? gold imports have declined during January and February while non-oil imports declined 3% in February.

For the first nine months of 2012-13, gold imports stood at $38 billion, marginally lower than $41 billion a year ago. Capital inflows at around $31 billion through foreign direct investment (FDI) and portfolio investments were just about enough to meet the CAD. Here too the decline in FDI was nearly 50% y-o-y at $2.5 billion, down from $4.9 billion.

Net inflows through the portfolio route surged to $8.6 billion from just $1.8 billion a year ago.

The government?s recent positive steps on reforms have spurred portfolio flows, analysts said.

Inflows through external commercial borrowings of Indian companies too surged. ECBs amounted to $3.1 billion in October-December compared with just $0.8 billion a year ago.

A big worrying factor was the jump of nearly 50% in primary income, which rose to $6.28 billion in October-December from $3.8 billion a year ago. Primary income includes dividends and profits of foreign companies in India and interest payments on non-resident deposits, loans and foreign currency debentures. Private transfers, or remittances that Indian residents abroad send back, declined around 3% to $14.8 billion in October-December from $15.6 billion a year ago.

Economists are revising their CAD estimates. ?Clearly, a CAD of below 4% in 2013-14 would now be a challenge,? said Shubada Rao, chief economist, YES Bank, who has upped her estimate of the CAD for 2012-13 to 5% from 4.6% earlier. Rao expects the CAD to improve to 4.0-4.1% in 2013-14.

The burgeoning CAD is the single biggest factor crimping the central bank?s ability to cut interest rates faster in response to slowing economic growth. Last week, RBI governor D Subbarao had said that the CAD would worsen in October-December compared with the previous quarter. The RBI has put the sustainable CAD for the country at 2.5% of GDP. According to Rao, the country would need $85-90 billion of inflows year after year to finance the CAD.

?The data has been priced in to a large extent by the market,? said Neeraj Gambhir, head of fixed income, India, at Nomura Securities. Gambhir added that the flows would depend on the how the European situation, especially the Cyprus bailout package, develops.