Current account gap hits record high in Sept quarter

MUMBAI Mon Dec 31, 2012 7:17pm IST

A grocery shop owner counts rupees notes in Ahmedabad May 23, 2012. REUTERS/Amit Dave

A grocery shop owner counts rupees notes in Ahmedabad May 23, 2012.

Credit: Reuters/Amit Dave

Related Topics

MUMBAI (Reuters) - India's current account deficit widened to a record high of 5.4 percent of GDP in the September quarter as export growth slowed more sharply than imports, with a similar gap expected in the December quarter likely to prolong weakness in the rupee.

The worse-than-expected deficit also adds pressure on the government as it tries to push through long-delayed reforms to stave off a sovereign rating downgrade due to the country's high deficit on both the current and fiscal accounts.

A sharp rise in gold imports, a hefty oil bill and falling exports due to the global slowdown have kept India's current account deficit at persistently high levels.

"Even with curbs on gold import, if you have the current account deficit going up, it will be a hit on the country's sentiment as a whole," said Vikas Babu Chittiprolu, a senior foreign exchange dealer with state-run Andhra Bank.

India ran a balance of payments deficit of $158 million for the July-September quarter, against a surplus of $521 million in the previous quarter and compared with a surplus of $276 million a year earlier, the RBI data showed.

The current account deficit was $22.3 billion in the three months through September, or 5.4 percent of GDP, compared with $16.6 billion in the June quarter and $18.9 billion in the September quarter of 2011.

Economists expect the current account gap to remain above 5 percent in the December quarter.

"Current account deficit is going to be as strained in the third quarter (October-December) as it was in the second quarter because of flattish GDP growth," said Shubhada Rao, chief economist at Yes Bank.

India's April-November fiscal deficit rose to 4.13 trillion rupees, or 80.4 percent of the budgeted target for the fiscal year ending in March, casting doubt on the government's pledge to mend its finances following a higher-than-budgeted expenditure bill.

The rupee was the third worst performer in Asia in 2012, even though net inflows into Indian stocks were the highest in the region. The rupee closed 2012 at 55.00.

"In the absence of any positive trigger the rupee could move a tad up to 53-54 in Jan-March due to seasonal dollar inflows," Yes Bank's Rao said.

India's financial account, which includes foreign direct investment, portfolio investment and overseas borrowing by Indian companies, stood at a surplus of $24.2 billion, higher than the $15.7 billion in the June quarter, and compared with $19 billion in the year-earlier period.

Gross domestic product growth for the current fiscal year is expected to be 5.7-5.9 percent, the slowest since 2002/03, and Prime Minister Manmohan Singh said last week that a five-year government plan for 8 percent expansion was "ambitious."

(Editing by Sanjeev Miglani and Tony Munroe)

FILED UNDER:

Economic Pulse

Reuters Showcase

Reaction to Budget

Reaction to Budget

India budget unlikely to impact credit rating - agencies  Full Article 

PMI Data

PMI Data

Factory activity growth slows to five-month low in Feb  Full Article 

Documents Leaked

Documents Leaked

Indian Oil suspends official for leaking information - sources  Full Article 

Coal Auction

Coal Auction

India examines coal mine bids amid reports of discrepancies  Full Article 

Ola Buys Rival

Ola Buys Rival

Ola buys rival TaxiForSure for $200 million  Full Article 

Priority Sector

Priority Sector

RBI revises priority sector lending norms  Full Article 

Global Economy

Global Economy

Global stimulus swells as China eases, ECB to start soon on QE  Full Article 

Steel Industry

Steel Industry

Steelmakers hit by uncertainty over import duty hike   Full Article 

HP Buys Aruba

HP Buys Aruba

HP to buy Wi-Fi gear maker Aruba Networks for $2.7 billion  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage