India’s current account deficit eases to 0.2% in Q4 as gold imports fall

India's current account deficit plunged to a low of 0.2 per cent of GDP in the last quarter of the 2013-14 financial year from levels around 3.6 per cent of GDP in the year-ago quarter amidst a general decline in imports and a more pronounced fall in gold imports.

The value of the country's imports has seen a steady decline over the past few months due to curbs on gold imports, which while reducing its current account deficit, also helped the rupee gain against the dollar and other major currencies.

However, foreign exchange outflows in terms of payment of interest, dividend and profit repatriation rose, which prodded the RBI to accumulate foreign exchange reserves for meeting future demand.

Foreign exchange reserves with the RBI had fallen to levels below $285 billion in the previous financial year stood at $313 billion in May 2014 while it is up around $25 billion from April 2013, according to Reserve Bank data.

Gold imports, which caused turmoil in the currency market and forced the government to impose import curbs, fell by a third to $5.3 billion in the quarter from $15.8 billion in the year earlier.

For the fiscal year, the current account deficit, the excess of consumption overseas than earnings, fell to 1.7 per cent of GDP, or $32.4 billion, from 4.7 per cent, or $87.8 billion, a year ago.

A turnaround in the global economy also helped improve India's external position through higher exports.

India's trade deficit narrowed by about 33 per cent to $30.7 billion in the quarter from $45.6 billion a year ago. Net services receipts, the other major component of current account in the balance of payments, grew 15.6 per cent to $19.6 billion against a decline of 3.9 per cent a year earlier.

Net outflow due to profit, dividend and interest was $6.4 billion, higher than $5.2 billion a year ago.