CAD rises to 2.1% of GDP in July-Sept period

India’s current account deficit widened to 2.1% of the gross domestic product (GDP) as gold imports swelled and the country saw a marked deceleration in exports.

India’s current account deficit widened to 2.1% of the gross domestic product (GDP) as gold imports swelled and the country saw a marked deceleration in exports.

According to data released by the Reserve Bank of India on Monday, CAD — measure of the difference between dollar inflows and outflows — totalled $10.1 billion during the July-September period. Although this is much higher than the $5.2 billion recorded a year ago, it is well under RBI’s threshold of 2.5% of GDP.

Merchandise exports growth dipped 4.9% in the second quarter, while there was an 8.1% surge in imports on higher inbound gold shipments.

Last week, RBI deputy governor HR Khan had said that the central bank was reasonably comfortable with CAD due to lower crude oil prices. The RBI also removed the restriction that required traders and companies to export 20% of the gold imported.

In his address last week on the economic outlook and the role of the monetary policy in funding infrastructure projects, RBI deputy governor SS Mundra said the Indian economy had to contend with serious challenges to external stability last year due to high CAD, capital outflows and exchange rate pressures.

“Measures initiated by the RBI and the government have since helped stabilise the economy. Improved political stability, a firmer commitment to fiscal consolidation, stronger monetary policy framework and better policy implementation are expected to improve GDP growth rate to around 5.5% in 2014-15, from the sub-5% experienced in the preceding two years,” Mundra said.