India’s CAD improves to $ 5.2 billion in second quarter

December 5, 2013

India’s Current Account Deficit (CAD) has improved significantly to $ 5.2 billion (1.2% of GDP) in the second quarter (July-September) of this fiscal mainly due to decrease in gold imports and increase in exports.
As per the RBI, the (CAD), the difference between outflow and inflow of foreign exchange, stood at $ 21 billion, or 5% of the GDP, in the second quarter of last fiscal. On a Balance of Payment (BoP) basis, there was a narrowing of foreign exchange reserves of $10.4 billion in second quarter as compared to that of USD 0.2 billion in the same period of last fiscal.
Improvement in trade deficit combined with a surge in net invisibles receipts resulted in a reduction of the CAD to $26.9 billion (3.1% of GDP) in H1 of 2013-14 from $37.9 billion (4.5% of GDP) in H1 of 2012-13.
The government has set a target to contain the CAD at $70 billion or 3.7% of GDP and the fiscal deficit at 4.8% of the GDP this fiscal (2013-14). At present, both the government and RBI are expecting the CAD to be below $56 billion in the current fiscal compared to the record high of USD 88.2 billion, or 4.8% of the GDP last fiscal.
In addition to rise in exports, a number of steps taken by the RBI paid off in improving the CAD. The central bank reduced the import of gold by hiking the import duty to 10% and restricting import of gold bars and medallions. During the period when rupee was depreciating, it took measures to boost exports.
As a result, gold imports have declined from 142 tonnes in April and 162 tonnes in May to 23.5 tonnes in October, 11.16 tonnes in September, 3.38 tonnes in August and 47.75 tonnes in July. In 2012-13, India imported an estimated 835 tonnes of gold, a key reason for the record CAD of $88.2 billion, or 4.8% of GDP.