India's external sector better, sustenance a challenge: Survey

India's balance of payments improved dramatically in 2013-14 with the current account deficit reducing by more than half, the Economic Survey said Wednesday, but added that sustaining this feat remained a medium-term challenge.

The current account deficit, which is the difference between the import and export of goods, services and capital, was at a worrisome level of 4.7 percent of India's gross domestic product, or a record $88.3 billion, in 2012-13.

It, nevertheless, fell to $32.4 billion or 1.7 percent of the GDP the next fiscal.

"After staying at perilously unsustainable levels of well over 4 percent of GDP in 2011-12 and 2012-13, the improvement in balance of payments position is a welcome relief and there is need to sustain the position going forward," the survey noted.

At the same time it noted that sustaining such improvement in the medium term remains a challenge, given the uncertain global environment and the frequent flight of capital. This, it added, required a mechanism for close monitoring and quick remedial steps.

The survey said the improvement was swift and came about due to to exceptional measures such as restrictions on non-essential imports and limiting incentives for some capital flows, besides the impact of overall economic slowdown on imports.

The balance of payments situation also had an impact on the rupee's exchange rate.

The annual average exchange rate of the rupee went up from 47.92 per US dollar in 2011-12 to 54.41 in 2012-13 and 60.50 in 2013-14, even as foreign exchange reserves increased from $292 billion at end March 2013 to $304.2 billion at end March, 2014.

The survey said India continues to be one of the countries with sizeable reserves given that some of the other major reserve holders are nations with large current account surpluses.