A sharp drop in imports has narrowed the country’s current account deficit for the quarter ended June 2012 by 24% over the previous quarter and returned the balance of payment (BoP) into positive territory. The dip reflects the self-correcting feature of the exchange rate where a weaker rupee leads to a drop in imports, leading to an easing of pressure on the exchange rate.
According to data released by Reserve Bank of India, the current account deficit — the shortfall in forex inflows arising out of the country’s total imports being more than its exports — shrunk to $16.5 billion for the first quarter of the fiscal, 24% lower than $21.76 billion in the preceding quarter.
The improvement in the current account position was because of merchandise imports dropping from $131.6 billion in March 2012 to $119.18 billion in June 2012.
Numbers for the first quarter show that there is a surplus of $500 million in the overall BoP — a record of all financial transaction, which includes capital flows in addition to current account transactions. The BoP position was negative in the previous two quarters.
While portfolio flows recorded a net outflow of $2 billion compared to a robust inflow of $13.9 billion in the previous quarter, the decline was compensated by higher net inflows on account of FDI, loans and banking capital.
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