India’s current account deficit (CAD)—the difference between dollar inflows and outflows---stood at 4.9% of GDP or $21.8 billion during April-June this year from 4% or $16.9 billion in the same period of the previous year, data released Monday showed.
The gap, however, is expected to taper down in the coming quarters aided by a sharp slump in gold imports and a smart rebound in exports amid early signs of recovery in the US and Europe that have boosted shipment orders.
Gold imports during April-June this year stood at $16.5 billion, higher by $7.3 billion compared to $9.1 billion worth of inward shipments of the yellow metal during the same quarter of the previous year.
“Excluding the increase in gold imports, CAD would work out to $14.5 billion, or about 3.2% of GDP,” the RBI said in its quarterly balance of payments statement.
CAD had declined to 3.6% in the January-March quarter after touching a record high of 6.5% in the October-December quarter.
Over the past three months that the government and the Reserve Bank of India (RBI) have launched a string of steps to attract foreign capital to arrest a sliding rupee and contain the CAD that hit a record high of 4.8% of GDP last year.
Last week, it relaxed norms for domestic companies to trade shares on foreign bourses aimed at attracting dollar inflows.
This followed a slew of other measures including import curbs and higher customs duties on gold, foreign exchange controls for companies and individuals and easier investment norms for a host of sectors such as telecom and high-tech defence.
India has targetted to limit CAD to 3.7% of GDP or about $70 billion this year, down from $88 billion last year.
Equity and currency markets in most emerging countries including India have tumbled after investors began flocking to safer locations ever since Fed Reserve chief Ben Bernanke hinted about rolling back the policy of pumping in cheap money to aid recovery in the US. Belling the CAD
The rupee, despite a smart relief rally since the beginning of this month, has fallen sharply.
A sliding rupee can be potent. For a start, it means that India needs to shell out more cash to import fuel, and this in turn raises the prices of transporting goods, leading to higher inflation.
Higher inflation may force the RBI keep interest rates elevated to stymie demand and cool prices, which will keep your EMIs high.