India's current account deficit (CAD) plunged to an unbelievable 0.2% of the gross domestic product in the March quarter, from 3.6% a year ago as imports crashed due to curbs on gold imports. But outflow from payments of interest, dividend and profit repatriation rose, signalling the need for the Reserve Bank of India to accumulate foreign exchange reserves to meet US dollar demand in future, which is set to rise.
Gold imports, which caused turmoil in the currency market and forced the government to impose import curbs, fell by a third to $5.3 billion in the quarter from $15.8 billion in the year earlier. For the fiscal year, the current account deficit, the excess of consumption overseas than earnings, fell to 1.7% of the GDP, or $32.4 billion, from 4.7%, or $87.8 billion, a year ago.
India's weak external position, which led it close to the brink of a sovereign rating downgrade and pummelled the Rupee last year, is improving, though with some harsh administrative measures such as making gold imports expensive. But the improving sentiment among businesses and investors could help rein in demand for the precious metal in future. The revival of the global economy could also help improve external position through higher exports.
Current account deficit narrowed to $1.2 billion during the quarter ended March from $18.1 billion, or 3.6 %, of GDP .
Trade deficit contracted by about 33% to $30.7 billion in the quarter from $45.6 billion a year ago. Net services receipts, the other major component of current account in the balance of payments, grew 15.6% to $19.6 billion against a decline of 3.9% a year earlier. Net outflow due to profit, dividend and interest was $6.4 billion, higher than $5.2 billion a year ago.
With the new government expected to relax gold import norms, and the RBI already relaxing gold curbs, the CAD for the current fiscal could rise. Furthermore, the revival of economic growth could also boost imports of other commodities, raising the CAD.
Portfolio flows into India in 2014-15 are likely to exceed the 2013-14 levels on improved sentiments, a mild recovery in domestic growth and continued interest rate differentials with advanced economies, according to the ratings firms.
For the whole fiscal year, export recovery and moderation in imports led to a sharp improvement in trade deficit to $147.6 billion from $195.7 billion in 2012-13.
Gold imports, which caused turmoil in the currency market and forced the government to impose import curbs, fell by a third to $5.3 billion in the quarter from $15.8 billion in the year earlier. For the fiscal year, the current account deficit, the excess of consumption overseas than earnings, fell to 1.7% of the GDP, or $32.4 billion, from 4.7%, or $87.8 billion, a year ago.
India's weak external position, which led it close to the brink of a sovereign rating downgrade and pummelled the Rupee last year, is improving, though with some harsh administrative measures such as making gold imports expensive. But the improving sentiment among businesses and investors could help rein in demand for the precious metal in future. The revival of the global economy could also help improve external position through higher exports.
Current account deficit narrowed to $1.2 billion during the quarter ended March from $18.1 billion, or 3.6 %, of GDP .
Trade deficit contracted by about 33% to $30.7 billion in the quarter from $45.6 billion a year ago. Net services receipts, the other major component of current account in the balance of payments, grew 15.6% to $19.6 billion against a decline of 3.9% a year earlier. Net outflow due to profit, dividend and interest was $6.4 billion, higher than $5.2 billion a year ago.
With the new government expected to relax gold import norms, and the RBI already relaxing gold curbs, the CAD for the current fiscal could rise. Furthermore, the revival of economic growth could also boost imports of other commodities, raising the CAD.
Portfolio flows into India in 2014-15 are likely to exceed the 2013-14 levels on improved sentiments, a mild recovery in domestic growth and continued interest rate differentials with advanced economies, according to the ratings firms.
For the whole fiscal year, export recovery and moderation in imports led to a sharp improvement in trade deficit to $147.6 billion from $195.7 billion in 2012-13.
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