Nation’s Current Account Deficit (CAD, which is the difference between inflow and outflow of foreign funds) widened to a record 6.7 per cent of GDP during October-December quarter of the current fiscal, mainly on account of heavy oil and gold imports and muted exports, prompting the Government to assure that it will take more steps to contain the deficit.
The CAD widened in the third (October-December) quarter to $32 billion, from $20 billion (4.4 per cent of GDP) in the corresponding quarter of last fiscal.
Describing CAD as large but not surprising, the Finance Ministry said on Thursday that the Government and the RBI would take additional steps to check the ballooning deficit.
During April-December 2012, CAD stood at $71.7 billion accounting for 5.4 per cent of GDP as against $56.5 billion (4.1 per cent of GDP) in the same period of 2011.
“The number (6.7 per cent) is large though not surprising ... Both RBI and the Government will continue to monitor the CAD and will take additional steps whenever warranted,” the Finance Ministry said in a statement.
Gold imports in the April-December period stood at $38 billion. In 2011-12 fiscal, the import was $56 billion.
The trade deficit during December quarter widened to $59.6 billion, up from $48.6 billion in the corresponding quarter a year ago, as imports shot up by 9.4 per cent during the period.
The Ministry said the CAD was financed through capital inflows without dipping into the foreign exchange reserves and hoped that the deficit would come down in the coming months on account of likely improvement in exports.
“CAD for fourth quarter is expected to be smaller. Government is committed to bringing down CAD over the time, as well as ensuring that it is financed safely,” it said.
The Government has already imposed curbs on import of gold by increasing duty with a view to contain ballooning CAD. Besides, it has taken steps to improve availability of gold.
The CAD, “widened from 5.4 per cent in Q2 (July-September) to a record high of 6.7 per cent of GDP in Q3, driven mainly by large trade deficit”, RBI said in its report on Balance of Payments (BoP).
The report said while the merchandise exports did not show any significant growth during the third quarter ending December 2012, the imports shot up by 9.4 per cent, spurred largely by oil and gold imports.
Finance Minister P Chidambaram in his Budget speech had said, “my greater worry is the CAD.” He had attributed the rise in the CAD to factors like excessive dependence on oil imports, the high volume of coal imports, passion for gold and slowdown in exports.
RBI hoped that with improvement in exports the deficit would moderate in coming months.
“CAD for fourth quarter is expected to be smaller. Govt is committed to bringing down the CAD over the time, as well as ensuring that it financed safely,” it added.
The Government has already imposed curbs on import of gold by increasing duty with a view to contain ballooning CAD. Besides, it has taken steps to improve availability of gold.
Commenting on the high CAD FICCI President Naina lal Kidwai said: “India’s large and growing current account deficit is a reflection of our vulnerability in the external sector with the balance of payments coming under increasing pressure.”
“While a deficit of this magnitude cannot be sustained, we hope to see some improvement in the present quarter and next, as there are signs of recovery in merchandise exports and the country’s trade deficit has fallen to a ten month low in February”, she added.
She also said we also need a benign oil prices as high oil prices throws our import bill out of gear. Provided the external economic environment continues to improve and our Government significantly steps up its efforts to support exports in the forthcoming foreign trade policy, India’s exports could make a much stronger recovery in the months ahead.
This will help contain our current account deficit which might witness some moderation in the current quarter, FICCI said in a statement released here on Thursday.