High oil prices and sharp increase in bullion imports may widen the country's current account deficit in this fiscal, the Reserve Bank said on Thursday.
"Higher oil prices and sharp increase in imports of bullion, machinery and electronics have resulted in continued buoyancy in imports. Recent data indicate further widening of the trade balance. Consequently, CAD which increased during Q1 of 2011-12, is expected to widen further," RBI said in its Financial Stability Report.
India's current account deficit swelled to $ 14.1 billion in its fiscal first (April-June) quarter, nearly three-times the previous quarter's figure.
Current account deficit (CAD) occurs when a country's total imports of goods, services and transfers is greater than the country's total export of goods, services and transfers.
In the April-October period, exports aggregated to $ 179.7 billion showing a handsome growth of 45.9 %. Also imports rose 30.9 % to $ 273.4 billion. This has left trade gap widening to $ 93.7 billion.
"...it is the global developments rather than fiscal slippages that is contributing to widening CAD," it said, adding that there is a downside risk to FII inflows on account of slowdown in the eurozone and the US.
India imports almost 80 % of its oil and gas requirements and the depreciating rupee has made imports expensive. Rupee has depreciated 18 % against dollar so far this year.
During April-October, oil imports stood at $ 81.9 billion, an increase of 40 %. The non-oil imports rose by 27.1 % to $ 191.5 billion.
Further, India's external sector faces risks due to decreasing growth in world trade volumes and weakening global demand.
"Going forward, exports may moderate further if the slowdown in advanced economies persists," RBI said.