At $1.2bn, CAD narrows sharply to 0.2% of GDP BoP Surplus Jumps To Over $7Bn In Q4 The country’s current account deficit narrowed sharply to $1.2 billion, or a mere 0.2% of its gross domestic product (GDP), in the fourth quarter of FY14, which is less than a fourth of $4.2 billion, or 0.9% of GDP, in the fourth quarter of FY13. The balance of payment (BoP) for the fourth quarter jumped sharply to $7.06 billion in the fourth quarter of 2013-14 from $2.68 billion in the same period in 2012-13. The fourth quarter BoP was however lower than the $19.1-billion surplus in the December quarter due to a slowdown in foreign direct investment. The improvement in the external position has led many analysts to believe that Reserve Bank of India will now reverse some of the foreign currency restrictions that it had placed last year following a sharp drop in the value of the rupee and dete rioration of current account deficit to 4.5% of GDP. Bankers say that the restriction that has helped in conserving the most foreign exchange was the ban on gold imports. Reserve Bank of India has partly relaxed this ban, allowing star export houses to bring in gold under the 20:80 scheme. Other curbs include halving the limit for individual remittances abroad to $100,000. For FY14, the balance of payments stood at $15.5 billion, up from $3.8 billion in FY13. The current account deficit, which touched a record high of $87.8 billion in the FY13, eased to $32.4 billion in FY14 after the crackdown on gold and electronic imports. The trade deficit in the January-March period fell to $30.7 billion from $45.6 billion a year earlier, while the capital and financial account surplus fell sharply to $2 billion versus $17.8 billion a year ago. Economists say that if there is a sharp revival in the economy, the current account deficit could worsen due to a pick-up in non-oil imports. “A pick-up in investments usually results in higher capital goods imports, whereas exports will take some time to catch up. As a result, the CAD could worsen,” said an economist with a public sector bank. Exports could also get impacted because of the sharp appreciation of the rupee to 58 levels from its record low of 68.85.
Posted on: Tue, 27 May 2014 11:26:31 +0000
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