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India keeps current account gap in check despite easing of gold import curbs
December 8, 2014 / 12:09 PM / 3 years ago

India keeps current account gap in check despite easing of gold import curbs

MUMBAI (Reuters) - India kept a lid on its current account deficit between July and September despite easing curbs on gold imports, data showed on Monday, thanks to a sharp increase in foreign investments and cheaper oil.

Rupee notes are seen in this picture illustration taken in Mumbai June 12, 2013. REUTERS/Vivek Prakash/Files

The deficit reached $10.1 billion, or 2.1 percent of gross domestic product, compared with $5.2 billion, or 1.2 percent of GDP, a year earlier, the Reserve Bank of India data showed.

Imports of gold - the second biggest burden on the trade balance after oil - accounted for most of that, nearly doubling to $7.6 billion from $3.9 billion, reflecting an easing of restrictions in May.

As a counterweight, foreign investor flows have surged to $42.4 billion this year, responding to economic reforms pledged by Prime Minister Narendra Modi after his election in May, as well as the RBI’s efforts to cut inflation.

The deficit is also being eased by falling oil prices, and Brent hit a five-year low on Monday.

“With oil prices coming down, that will be a big benefit and easily offset the increase in gold imports,” said Sonal Varma, an economist for Nomura in Mumbai. “Broadly, the current account is quite stable.”

RBI officials have said they are comfortable with the deficit at current levels, and it remains far off the record high of 4.8 percent of GDP it hit in 2012/13, helping spark the country’s biggest market turmoil since its 1991 balance of payment crisis.

Monday’s data showed the balance of payments at a surplus of $6.9 billion during July-September, marking a fourth consecutive quarter of surplus though down from $11.2 billion in the prior quarter.

Some analysts warned against complacency, citing the unpredictability of oil prices and prospects that gold imports will continue to surge.

“I think (policymakers) should take it as an early sign of alarm,” said Rupa Rege Nitsure, chief economist of Bank of Baroda in Mumbai.

Reporting by Neha Dasgupta; Editing by Rafael Nam and John Stonestreet

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