Balance of payments swings to surplus: RBI
Mar 05 2014 , Mumbai
Less than a year ago the current account deficit had surged to a record high, eroding foreign investors' confidence and the value of the rupee. The latest data could help to improve the image of the governing Congress party in polls next month.
India returned to a surplus of $19.1 billion for October-December, much higher than a nearly $800 million surplus a year ago, Reserve Bank of India figures showed on Wednesday.
The current account deficit for the quarter narrowed to $4.2 billion, or 0.9 percent of gross domestic product (GDP), from $31.9 billion a year ago, or 6.5 percent.
The government raised duties on gold imports to as high as 10 percent last year to defend the rupee which was hitting record lows.
General elections are set to kick off on April 7. Polls have shown Congress losing support because of concerns about its economic management and corruption scandals.
"Going forward, our projection is we will get about 2 percent current account (deficit) as a percentage of GDP (for the fiscal year ending March 2015), but it is still early days because it is very contingent now on the outcome of the election and the policies that are followed after that," said Saugata Bhattarcharya, chief economist at Axis Bank.
Gold imports slumped to $3.1 billion in the December quarter, compared to $17.8 billion last year, improving the balance of payments.
The current account deficit hit a record high of 4.8 percent of GDP in the year ended in March 2013. Since then, foreign investors have returned, allowing the rupee to rebound 11.5 percent from a record low of 68.85 in late August.
Foreign institutional investors have bought a net $484.2 million in Indian shares so far this year, after buying a net $20 billion last year.
However import curbs on gold have proved unpopular in a country where the metal is sought after a hedge against inflation and as a traditional gift.
That is raising expectations the government, mindful of its electoral standing and the rise in gold smuggling, could look to ease some of the import curbs. Finance Minister P. Chidambaram said on Wednesday the decision will be taken after the full fiscal year 2013/14 current account deficit number becomes clear.
"I don't expect any risks to emerge on the current account deficit ... because even if the (gold) curbs are eased this will likely be done very gradually to ensure the current account is not hit," said Siddhartha Sanyal India, an economist at Barclays.
The gold import curbs also helped narrow India's trade deficit in the October-December period to $33.2 billion compared with $58.4 billion a year ago.
While the capital and financial account surplus fell sharply to $4.8 billion versus $30.8 billion a year ago, economists expect foreign investors to remain strong buyers.