India’s current account deficit (CAD) narrowed sharply to $4.2 billion (0.9 per cent of gross domestic product (GDP)) in the third quarter of the current financial year from $31.9 billion (6.5 per cent of GDP) in the third quarter of 2012-13. This is also lower than $5.2 billion (1.2 per cent of GDP) in the second quarter of 2013-14.

“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,” the RBI said in a release.

Merchandise exports

On balance of payments (BoP) basis, merchandise exports increased by 7.5 per cent to $79.8 billion in third quarter of 2013-14 (3.9 per cent in third quarter of 2012-13) “on the back of significant growth especially in the exports of engineering goods, readymade garments, iron ore, marine products and chemicals.”

On the other hand, merchandise imports at $112.9 billion, recorded a decline of 14.8 per cent against an increase of 10.4 per cent. “The decline in imports in the third quarter was primarily led by a steep decline in gold imports, which amounted to $3.1 billion as compared to $17.8 billion in the third quarter of 2012-13 and $3.9 billion in the second quarter of 2013-14,” the RBI added. As a result, merchandise trade deficit (BoP basis) contracted by around 43 per cent to $33.2 billion in the third quarter of 2013-14 from $58.4 billion a year ago.

FDI

In the financial account, on net basis, foreign direct investment and portfolio investment recorded inflows of $6.1 billion and $2.4 billion, respectively in the third quarter of 2013-14. Within portfolio investment, the debt segment showed net outflow which, however, was offset by higher net inflows of equity of $6.2 billion. Net inflows of NRI deposits amounted to $21.4 billion as compared to $2.7 billion. “A sharp increase in NRI deposits was on account of fresh FCNR(B) deposits mobilised under the swap scheme offered by the Reserve Bank during September-November 2013.”

Forex reserves

On BoP basis, there was a net accretion of $19.1 billion to India’s foreign exchange reserves in the third quarter of 2013-14 as compared to a drawdown of $10.4 billion in the preceding quarter.

The RBI said that the turnaround in export growth and decline in imports from July 2013 onwards led to a sharp reduction in the trade deficit to $116.9 billion in April-December 2013 from $150 billion in April-December 2012.

Contraction in the trade deficit, coupled with a rise in net invisible receipts, resulted in a reduction of the CAD to $31.1 billion (2.3 per cent of GDP) in April-December 2013 from $69.8 billion (5.2 per cent of GDP) in April-December of 2012, the RBI added.

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