India’s current account deficit (CAD) — a measure of the difference between dollar inflows and outflows —dropped sharply to $4.2 billion or 0.9% of GDP during October-December 2013 from $31.9 billion or 6.5% of GDP a year ago aided by plunging gold imports and a rebound in exports that has helped bring in precious dollars.
CAD stood at $5.2 billion or 1.2% of GDP during July-September.With a CAD of $31.1 billion during April-December 2013, India looks on course to contain the deficit within $45 billion in 2013-14, down from $88 billion last year.
The gap has tapered down sharply over the last two quarters as the government and the Reserve Bank of India launched a string of steps including curbs on gold imports and measures 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.
Budding signs of recovery in the US and Europe — two of India’s biggest export markets — have resulted in a surge in shipment orders from the country.
Gold imports during the quarter stood at $3.1 billion from $17.8 billion a year ago and $3.9 billion during July-September as inward shipments of the yellow metal slumped after the government and RBI imposed import curbs including higher customs duties.
“Lower CAD was primarily on account of a decline in the trade deficit as merchandise exports picked up and imports moderated, particularly gold imports,” a RBI statement said Wednesday.
Exports rose 7.5% to $79.8 billion during October-December 2013-14 on the back of significant growth especially in the exports of engineering goods, readymade garments, iron ore, marine products and chemicals.
On the other hand, imports at $112.9 billion, recorded a decline of 14.8% during the quarter, against a rise of 10.4 % during the third quarter of 2012-13.
“The decline in imports during the quarter was primarily led by a steep decline in gold imports,” the RBI said.
Foreign exchange reserves increased by $ 8.4 billion during April-December 2013 as compared with an accretion of $1.1 billion in April-December 2012.
Equity and currency markets in most emerging countries including India had tumbled after investors began flocking to safer locations following the US Federal Reserve’s first hint at rolling back the policy of pumping in cheap money.
The rupee, despite a relief rally since September, is still 15% lower than its value in May.