The country’s current account deficit widened to a record high of 6.7% of gross domestic product in the quarter ended December 2012 on the back of slow exports and high imports of oil and gold. The higher-than-expected deficit number prompted the finance ministry to issue a statement that both the Reserve Bank of India (RBI) and the government will take additional steps to moderate the deficit whenever warranted and they are monitoring the external situation.
According to data released by RBI, CAD stood at $32.63 billion in the third quarter, up from $20.16 billion in the corresponding period last year. CAD refers to the excess export payments over earnings from imports and remittances from overseas Indians. In the second quarter, CAD stood at $22.3 billion. However, the balance of payments, which includes capital inflows such as investment by foreign institutional investors, foreign direct investors, NRI deposits and foreign loans, was in surplus of $781 million compared to a deficit of $158 million in the previous quarter. The third quarter trade deficit stood at $42.01 billion, down from around $48.3 billion in the second quarter.
A high CAD is a cause for worry as it puts pressure on the exchange rate. However, dealers said that they do not expect any major reaction to the CAD number which pertains to the previous quarter. The rupee ended the year at 54.28 against the dollar as euro concerns abated slightly.
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