Gold import curbs help narrow down CAD to 1.7% in Q1

BoP registers 3rd straight quarter surplus

Gold import curbs help narrow down CAD to 1.7% in Q1

Gold import curbs appeared to have worked. India’s current account deficit (CAD) narrowed sharply to 1.7 per cent in April-June quarter compared with the same quarter last year on account of reduction in trade deficit and a steep decline in gold imports. 

Last year, in April-June period, the CAD had reached a whopping 4.8 per cent. In dollar terms, the CAD narrowed sharply to $7.8 billion in April-June from $21.8 billion in the year-ago period.

As per the data released by RBI on Monday, along with lowering of CAD, the balance of payments  (BoP) too  registered a surplus of $11.2 billion during April-June period from $7.1 billion in the January-March this year.

A sharp 57.2 per cent fall in gold import in April-June quarter this year led to a narrowing of trade gap which helped narrowing of CAD. “The lower CAD was primarily on account of a contraction in the trade deficit contributed by both a rise in exports and a decline in imports," the RBI said in a statement.

In dollar terms gold imports were lower at $7 billion in the first quarter this year or less than half of the same period last quarter. Gold imports stood at $16.5 billion in April-June quarter last year.

The CAD, which is the difference between the inflow and outflow of foreign currency, had touched a record high of $ 88 billion (4.8 per cent) in 2012-13 fiscal mainly on account of steep increase in gold imports.

It had narrowed to $32.4 billion  for the entire 2013-14 fiscal after government imposed import restrictions on gold. As per the BoP data released on Monday, on net basis, both foreign direct investment and portfolio investment recorded inflows in the first quarter of 2014-15. While net inflow on account of portfolio investment was $12.4 billion, net FDI inflow was substantially higher at $8.2 billion.

“There was a net accretion of $ 11.2 billion to India's foreign exchange reserves in first quarter of 2014-15 as against a draw down of $0.3 billion in Q1 of 2013-14,”RBI said.This is the third straight quarter in which there has been a net addition to foreign exchange reserve, reflecting an improvement in the BoP situation.

Net inflows of NRI deposits amounted to $2.4 billion in June quarter of 2014-15, as compared to $ 5.5 billion in the same quarter of previous fiscal.

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