Recovery path? India narrows CAD to $ 5.2 bn in Q2
The RBI said the turnaround in export growth and decline in imports from July 2013 onwards led to a sharp improvement in the trade deficit to $83.8 billion in the first half of 2013-14.
Mumbai/New Delhi: Decline in gold imports and turnaround in exports helped narrow India's current account gap sharply to $5.2 billion, or 1.2 percent of GDP, in the July-September quarter of this fiscal.
"Clearly BoP (Balance of Payment) position has improved significantly. The current account position has improved significantly quarter on quarter and half year on half year. Trade deficit has also narrowed," Finance Minister P Chidambaram said.
The current account deficit (CAD), the difference between outflow and inflow of foreign exchange, was $21 billion, or 5 percent of the GDP, in the second quarter of last fiscal.
On a BoP basis, there was a drawdown of foreign exchange reserves of USD 10.4 billion in second quarter as compared to that of $0.2 billion in the same period of last fiscal, RBI said in a statement.
It said the lower CAD during the second quarter was primarily on account of a decline in the trade deficit as merchandise exports picked up and imports moderated, particularly gold imports.
"Contraction in the trade deficit coupled with a rise in net invisibles receipts resulted in a reduction of the CAD to $26.9 billion (3.1 percent of GDP) in H1 of 2013-14 from $37.9 billion (4.5 per cent of GDP) in H1 of 2012-13," it said.
"We are on target to contain CAD and despite some concerns expressed, we will contain the fiscal deficit at 4.8 percent," Chidambaram said.
Both the government and RBI are expecting the CAD to be below $56 billion in the current fiscal compared to the record high of $88.2 billion, or 4.8 per cent of the GDP last fiscal.
Besides, pick up in exports, the steps taken by the Reserve Bank and the government have resulted in a sharp decline in gold imports, which was one of the main contributors to high CAD last year.
The government has taken several steps, including hike in gold import duty to 10 per cent and restrictions on import of gold bars and medallions, to restrict CAD. It has also taken measures to boost exports, taking advantage of depreciating rupee.
Gold and silver imports in April-October 2013 declined by 12.86 percent to $24 billion compared to $28 billion in the same period last year. Gold imports have fallen from 142 tonnes in April and 162 tonnes in May. They were at 23.5 tonnes in October, compared with 11.16 tonnes in September, 3.38 tonnes in August and 47.75 tonnes in July.
India imported an estimated 835 tonnes of gold in 2012-13, a key reason for the record current account deficit (CAD) of $88.2 billion, or 4.8 percent of GDP.
During the first quarter of the current fiscal, CAD widened to $21.8 billion or 4.9 percent of GDP.
On a BoP basis, merchandise exports increased by 11.9 percent to $81.2 billion in second quarter of 2013-14 on the back of significant growth especially in the exports of textile products, leather products and chemicals.
On the other hand, it said, merchandise imports at $114.5 billion, recorded a decline of 4.8 percent in July-September period of 2013-14 as compared with a decline of 3 percent in in the year ago period, primarily led by a steep decline in gold imports, which amounted to $3.9 billion.
India imported gold worth $16.4 billion in first quarter of the current fiscal.
As a result, it said, the merchandise trade deficit contracted to $33.3 billion in the second quarter of 2013-14 from $47.8 billion a year ago.
Net outflow on account of primary income (profit, dividend and interest) amounting to $6.3 billion during the period was higher than that in the preceding quarter at $4.8 billion.
While foreign direct investment recorded net inflows of $6.9 billion in the said period, net portfolio investment registered an outflow of $6.6 billion in the wake of indication given by US Federal Reserve about the tapering of its quantitative easing programme, it said.
There was a marginal net outflow of $0.8 billion under equities while the debt component of net FII flows recorded a higher outflow of $5.7 billion, it added.
The RBI said the turnaround in export growth and decline in imports from July 2013 onward led to a sharp improvement in the trade deficit to $83.8 billion in the first half of 2013-14 from $91.6 billion in same period a year ago.
Net inflows under the capital and financial account (excluding change in foreign exchange reserves) declined to $15.1 billion in H1 of 2013-14 from $37.0 billion in H1 of 2012-13 owing to net outflows of portfolio investment.
Notwithstanding a lower CAD during April-September (H1) of 2013-14, there was a drawdown of foreign exchange reserve to the tune of $10.7 billion as against an accretion of $400 million in same period last fiscal mainly due to a decline in net capital inflows under the financial account, it added.
On balance of payments basis excluding valuation effects, the foreign exchange reserves declined by $10.7 billion during April-September 2013 as against an increase of $0.4 billion in the same period of last fiscal.
"The foreign exchange reserves in nominal terms (including the valuation effects) declined by $14.8 billion during April-September 2013 as against an increase of $0.4 billion during the same period of preceding year," RBI said in a separate statement.
"The valuation loss, reflecting the appreciation of the US dollar against major currencies, amounted to $4.1 billion during April-September 2013 as against a marginal gain of $0.1 billion during the same period of preceding year," it said.
"As on September 6, the forex reserve was $274 billion. As on November 22 forex reserve was $286.26 billion. So there has been as accretion of nearly $13 billion," Chidambaram said.
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