Current account deficit narrows to 1.7 % of GDP

India’s current account deficit (CAD) for the January-March period narrowed sharply to $1.2 billion (0.2 per cent of GDP) from $18.1 billion (3.6 per cent of GDP) in the same period last year, which was also lower than $4.2 billion (0.9 per cent of GDP) in the October-December quarter of 2013-14.

“The lower CAD was primarily on account of a decline in the trade deficit as decline in imports was sharper than that in exports,” the Reserve Bank of India (RBI) said on Monday.

As per preliminary data on India’s balance of payments (BoP), released by the RBI, merchandise exports declined by 1.3 per cent to $ 83.7 billion for the fourth quarter of 2013-14, as against an increase of 5.9 per cent in the fourth quarter of 2012-13.

Steep drop in gold imports

On the other hand, the declining trend in merchandise imports continued in the fourth quarter of 2013-14. Imports, at $114.30 billion, moderated by 12.3 per cent in the fourth quarter. The decline in imports was primarily led by a steep drop in gold imports, which amounted to $ 5.30 billion, lower than $15.80 billion in the fourth quarter of 2012-13, the RBI said.

As a result, the merchandise trade deficit contracted by about 33 per cent to $30.70 billion in the fourth quarter of 2013-14 from $ 45.60 billion in the corresponding quarter a year ago.

As far as BoP during 2013-14 is concerned, export recovery and moderation in imports led to a sharp drop in the trade deficit to $147.60 billion in 2013-14 from $195.70 billion in 2012-13.

Contraction in the trade deficit, coupled with a rise in net invisibles receipts, resulted in a reduction of CAD to $32.40 billion (1.7 per cent of GDP) in 2013-14 from $87.80 billion (4.7 per cent of GDP) in 2012-13.

The RBI said that net inflows under the capital and financial account (excluding change in foreign exchange reserves) declined to $48.80 billion in 2013-14 from $89 billion in corresponding period of 2012-13 owing to lower net FDI and portfolio flows, net repayment of loans and trade credit and advances.

On BoP basis, foreign exchange reserves increased by $15.50 billion during 2013-14 as compared with $3.80 billion in 2012-13, the RBI said.