Mumbai, Dec. 2: India’s current account deficit (CAD) shrank to $5.2 billion — or 1.2 per cent of GDP — in the second quarter of July-September from $21 billion a year ago.
The sharp fall in CAD, which is the difference between outflows and inflows of foreign currency, from 4.9 per cent of GDP ($21.8 billion) in the first quarter (April-June) is largely because of the dramatic fall in gold imports from $16.4 billion in the first quarter to $3.9 billion in the quarter ended September 30.
The latest figures should come as a relief to the policy makers and the Reserve Bank of India (RBI) as rising CAD had played a major role in bringing the rupee to its all-time low of 68.85 to a dollar.
However, various steps taken both by the Centre and the central bank over the past few months have led to a steady decline in this number.
Last month, RBI governor Raghuram Rajan projected that CAD — a big source of concern for the authorities and foreign investors — would tumble to $56 billion by the end of March. In the last fiscal, CAD had peaked at $88.2 billion.
Experts point out that if the current trend continues, CAD can be even lower and it may come in at around $50 billion for the year.
The second quarter CAD numbers came on a day the RBI shut a special window it had opened in September for oil marketing firms to meet their dollar requirements. The move came as the Indian currency has now stabilised from the depths touched in late August. It also came in earlier than expected as the numbers were expected to be released by the end of this month.
As part of its measures to rescue the Indian currency, the apex bank had opened a window wherein banks could swap their FCNR (B) borrowings and funds raised from the overseas markets. These two measures alone led to a mobilisation of $34 billion.
According to the RBI, 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.
During the period, merchandise trade deficit contracted to $33.3 billion from $47.8 billion a year ago. While merchandise exports increased 11.9 per cent to $81.2 billion on the back of significant growth particularly in the export of textile and textile products, leather & leather products and chemicals.
Merchandise imports at $114.5 billion saw a higher decline of 4.8 per cent compared with a decline of 3 per cent in the corresponding period a year ago.