But balance of payments deficit in second quarter surges due to slowing capital inflows
Reserve Bank of India (RBI) Governor Raghuram Rajan seems to have made springing pleasant surprises a habit. In yet another break from tradition, RBI on Monday released the current account deficit (CAD) figures for the July-September quarter a month ahead of the usual December-end schedule.
The data showed a huge drop in the CAD numbers, which would provide further relief to the rupee, as markets prepare to face tapering of the US Federal Reserve’s asset purchase plan. CAD for the quarter ended September narrowed sharply to $ 5.2 billion, or 1.2 per cent of gross domestic product (GDP), from $21 billion (5 per cent of GDP) in the year-ago period, mainly due to curbs on imports of non-essential items like gold and a pick-up in exports. This, according to Bloomberg data, is also the lowest deficit figure since 2010.
RBI said CAD had come down in the quarter primarily on account of a decline in trade deficit — merchandise exports picked up and imports, particularly of gold, moderated. Trade deficit contracted to $33.3 billion in the quarter from $47.8 billion a year ago.
On a sequential basis, too, the deficit was much lower than the 4.9 per cent of GDP in the first quarter of the financial year. The central bank expects CAD for full 2013-14 to be about $56 billion (less than 3 per cent of GDP), compared with $88 billion (4.8 per cent of GDP) in the previous financial year.
The quarter saw a significant fall in trade deficit, as imports fell sharply, while exports picked up. Compared with the second quarter of 2012-13, merchandise exports were up 12 per cent to $81.2 billion, while imports declined 4.8 per cent to $114.5 billion. Gold imports in the quarter dropped to $3.9 billion from $16.4 billion in the first quarter and $11.1 billion in the corresponding year-ago period, showed balance of payments data, released by RBI on Monday.
Improvement in service exports helped increase net invisibles, further aiding a fall in current account deficit.
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