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India's Current Account Deficit at 5-Quarters High
Dec 18, 2014

India’s current account deficit (CAD) widened to a five-quarter high of 2.1% of gross domestic product in the second quarter ended 30 September, as exports growth slowed and imports increased because of a rise in demand for gold. During the second quarter last year, CAD was 1.2% of GDP and during the preceding first quarter of the current financial year, it was 1.7% of GDP. The deficit reached $10.1 billion compared with $5.2 billiona year earlier.

Merchandise export growth during the September quarter slowed to 4.9% from 11.9% during the same quarter a year ago, while merchandise imports increased by 8.1% against a decline of 4.8% the second quarter of 2013-14, largely due to a sharp rise in gold imports. Net gold imports increased to $7.6 billion in the second quarter from $7 billion in the previous quarter.

RBI officials have said they are comfortable with the deficit at current levels, and it remains far off the record high of 4.8 per cent of GDP it hit in 2012-13. Reserve Bank of India (RBI) deputy governor, said that the central bank is reasonably comfortable with the current account deficit scenario because of lower oil prices. Brent crude oil on fell below $68 per barrel, a new five-year low, on predictions that oversupply would keep building until next year after the Organization of Petroleum Exporting Countries decided not to cut output. The Union government eased gold imports last month by removing a restriction that required traders to export 20% of the precious metal they bought overseas—a move that had been aimed at cutting the CAD. The so-called 20:80 norm was introduced in August last year, together with a duty of 10%, at a time when the deficit had widened to a record and gold imports had been surging.


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