Current account deficit in Q3 dips 20% to $9.7 bn

India's Current Account Deficit (CAD), representing net flow of income out of the country barring capital movements, declined 20.49% to $9.7 billion in the October-December quarter over the same period last year.

The moderation in CAD during the third quarter (Q3) this fiscal is due to higher recovery in the invisibles surplus, according to the data on Balance of Payments (BOP) released by the Reserve Bank of India (RBI).

During Q3 last fiscal, CAD was $12.2 billion.

CAD, which includes deficit in external trade of goods, and services, besides net investment income, stood at 2.9% of GDP last fiscal, and experts believe that it will top three% of GDP this fiscal.

During April-December, CAD was $38.9 billion, up from $25.5 billion in the same period last fiscal.

At this level, the CAD works out to 3.1% of GDP during April-December 2010.

"Despite improvement in net invisibles surplus, the CAD widened during April-December 2010 mainly due to higher trade deficit as compared to the corresponding period last year," the RBI said.

During October-December, there has been higher capital inflow due to increased investment in capital markets by foreign funds, external commercial borrowings by India Inc and external assistance, the data showed.

During the quarter, the foreign institutional investors put in $7.2 billion, while it was only $5.3 billion in the same period last fiscal.

However, foreign direct investment fell to $2.1 billion during October-December, from $3 billion in the year-ago period.

Although net capital inflows increased significantly, accretion to reserves during April-December 2010 was marginally lower mainly due to CAD widening over the year-ago period.