Current account deficit narrows sharply to USD 4.2 bn in Q3

Rising exports and moderation in gold imports have pulled down India's current account deficit (CAD) sharply to USD 4.2 billion, or 0.9 per cent of GDP, in December quarter of 2013-14.
"The lower CAD was primarily on account of a decline in the trade deficit as merchandise exports picked up and imports moderated, particularly gold imports," the Reserve Bank said while releasing the external sector data.
The CAD, which reflects difference between inflow and outflow of foreign currency, stood at USD 31.9 billion, or 6.5 per cent of GDP, in October-December quarter of 2012-13.
It narrowed to USD 31.1 billion (2.3 per cent of GDP) in April-December 2013 from USD 69.8 billion (5.2 per cent of GDP) in April-December of 2012.

The reduction, RBI said, was due to contraction in the trade deficit, coupled with a rise in net invisible receipts.
In his interim budget speech, Finance Minister P Chidambaram had said the year-end CAD will be contained at USD 45 billion, well below the record high level of USD 88 billion in 2012-13.

High gold imports was one of the major reasons for the record CAD. The high CAD was adversely affecting the value of rupee and hurting investor sentiment.
Both the government as well as the RBI implemented a series of restrictions to curb gold imports to bring down CAD.

Earlier in the day, Chidambaram said government would revisit the import duty on gold only after factoring in the year-end CAD data.
The Balance of Payments (BoP) during October-December 2013 period released by the RBI revealed that merchandise exports increased by 7.5 per cent to USD 79.8 billion in Q3 of 2013-14. This was on the back of significant growth especially in the exports of engineering goods, readymade garments, iron ore, marine products and chemicals.
Merchandise imports at USD 112.9 billion, recorded a decline of 14.8 per cent in Q3 of 2013-14 as against an increase of 10.4 per cent in Q3 of 2012-13.

"Decline in imports in Q3 was primarily led by a steep decline in gold imports, which amounted to USD 3.1 billion as compared to USD 17.8 billion in Q3 of 2012-13 and USD 3.9 billion in Q2 of 2013-14," the Balance of Payments (BoP) data said.
Merchandise trade deficit (BoP basis) contracted by around 43 per cent to USD 33.2 billion in Q3 of 2013-14 from USD 58.4 billion a year ago.
On BoP basis, foreign exchange reserves increased by USD 8.4 billion during April-December 2013 as compared with an accretion of USD 1.1 billion in April-December 2012.