Mumbai: Rising gold imports widened current account deficit to USD 10.1 billion or 2.1 percent of GDP in July-September quarter of this fiscal, up from 1.2 percent a year-ago, but experts are hopeful that it will remain in comfortable zone to be financed by growing capital inflows.
On the balance of payments (BoP) front, the country, however, recorded a surplus of USD 6.9 billion in the second quarter, making it the fourth consecutive quarter of positive BoP, Reserve Bank data showed today.
The current account deficit (CAD) is the net difference between inflows and outflows of foreign currencies, while BoP is the record of all economic transactions of a country with the rest of the world in a given period.
The central bank cited higher trade deficit due to rising gold imports as the primary reason for the spike in CAD. Gold imports surged 8.1 percent, while merchandise exports growth dipped 4.9 percent in the reporting quarter.
The trade deficit in the September quarter rose to USD 38.6 billion from USD 34.6 billion a quarter ago.
Analysts are optimistic that the current account gap will be maintained at 1.7 percent during the current fiscal.
"We expect a CAD of USD 35 billion or 1.7 percent of GDP for the full fiscal, which would be comfortably financed by capital inflows as we expect the average monthly trade deficit is expected to narrow ... Following easing of commodity prices," rating agency Icra said in a note.
Stating USD 10.1 billion CAD is in line with its expectations, Icra said the rising numbers are due to a spike in gold and non-oil non-gold imports and subdued growth of merchandise and services exports.
It can be noted that higher gold imports have offset the steep fall of around 30 percent in crude prices.
For the first half of the fiscal, CAD however narrowed to 1.9 percent or USD 17.9 billion from 3.1 percent a year ago. It stood at 4.7 percent in 2013-14, the year in which rupee plunged to all-time low of near 69 against dollar.
Last year, the rupee plunged to the tune of 30 percent due to capital outflows due to US tapering fears of talk, leading to higher CAD. The government and the RBI had unleashed some unconventional moves to arrest the rupee slide.
Icra said imports are expected to record a low rise from USD 466 billion in FY 2014 to USD 465-470 billion in FY 2015, with the decline in commodity prices dampening the pressure on the overall import bill.
Following the sharp fall crude price, Icra expects net oil imports to decline to USD 85 billion this fiscal from USD 101 billion in FY 2014.
It also cautioned that withdrawal of the 80:20 scheme may arrest the extent of correction in the quantity of imports.
The RBI data showed that there was a net accretion of USD 6.9 billion to the forex reserves during the reporting quarter as against a drawdown of USD 10.4 billion.
Net inflows of NRI deposits at USD 4.1 billion in Q2 were lower than the USD 8.2 billion notched up during the days of rupee fall in the year ago period.
External commercial borrowings by enterprises at USD 1.4 billion were higher than USD 1.3 billion year-on-year.
On services, the net services improved by 3.4 percent on a pick-up in telecommunications, computer and information services, the RBI said.
