Mumbai: The country's current account deficit shrunk to $5.2 billion (1.2% of gross domestic product) for the quarter ended September 2013, which is nearly 76% less than the deficit of $21.8 billion for the quarter ended June 2013.
The reduction in CAD is attributed to curbs on gold imports coupled with a smart recovery in exports following the depreciation of the rupee.
The current account deficit – which reflects the shortfall of export earning over import income – has dropped because merchandise exports have risen by nearly 10% over the first quarter of FY13 even as exports shrunk 8%.
The Reserve Bank of India (RBI) on Monday advanced its release of trade data, which was due toward the monthend, ostensibly to reassure markets as it withdrew most of the support measures introduced in the previous quarter to bolster the rupee. The rupee rose to a near twoweek high on Monday before settling down at 62.32 against the greenback.
The measures that were withdrawn include a facility whereby RBI lent dollars to oil marketing companies, which was discontinued last week.
"Given the backdrop of broad stability returning to the forex market, on the basis of an ongoing review of the demand conditions in the market, OMCs have been allowed to source dollars even beyond their normal daily requirements," RBI said in a statement. The central bank also discontinued a facility where it subsidized banks for mobilizing foreign deposits and converting them into rupees. RBI said that it raised $34 billion by exchanging dollars mobilized by banks – through NRI deposits and ECBs – for rupees through a swap facility. To encourage banks raise dollars through NRI deposits and foreign borrowings, RBI had subsidized the cost of converting these deposits into dollars and hedging currency risk.
The announcement came on a day when Morgan Stanley raised its 2013 and 2014 GDP growth estimates to 4.7% and 5.1%, respectively, from 4.4% and 4.6% based on improving macro numbers and reduced chances of the US Fed withdrawing its stimulus package.
While the trade deficit showed a marked improvement, the overall balance of payments (which factors in capital flows in addition to trade flows) showed a worsening of the deficit. The BoP deficit stood at $10.4 billion of the second quarter compared to a $200 million deficit in the same period last year. The BoP deficit, despite the improvement in trade numbers, was on account of foreign institutional investors pulling out money from the country on fears of US Fed tapering.  |
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