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CAD widens to record 4.8 per cent of GDP in FY13 on oil, gold imports

The finance ministry tried to allay investors' fears, saying the short-term increase or decrease in CAD should not be a cause for either optimism or pessimism.

BT Online Bureau | June 27, 2013 | Updated 14:19 IST

India's current account deficit (CAD) hit a record high 4.8 per cent of gross domestic product (GDP) in the fiscal year ended March 31, fuelled by rising imports of oil and gold.

The current account gap for the entire 2012-13 financial year was $87.8 billion, compared with $78.2 billion a year earlier.

The figure is lower than an expected gap of 5 per cent, giving a boost to the battered rupee. The Indian currency rose as high as 60.31 to the dollar in early trade on Thursday, a day after it touched a record low of 60.76 to the Greenback.

The current account data, released a day ahead of schedule, shows that for the January-March quarter, CAD narrowed from the record high touched in the previous quarter to $18.1 billion or 3.6 per cent of GDP. India had a deficit of $21.7 billion the year before.

"CAD moderated sharply to 3.6 per cent of GDP in Q4 of 2012-13 from a historically high level of 6.7 per cent of GDP in Q3 of 2012-13 as trade deficit narrowed," the Reserve Bank of India (RBI) said. "Essentially non-oil, no-gold components of imports showed a decline, reflecting slowdown in domestic economic activity," it added.

India, the world's biggest gold buyer, has announced a slew of measures to curb demand for the yellow metal, which accounts for about 11 per cent of overall imports.

Last month, the government raised the import duty on gold to 8 per cent and the central bank placed curbs on banks on lending against gold and gold jewellery.

While analysts expect the current account deficit in the current year ending March 2014 to narrow, a beaten-down rupee may keep foreign investors wary and weigh on the current account gap.

Meanwhile, the finance ministry said "the short-term increase or decrease in CAD should not be a cause for either optimism or pessimism". "We must look at the figure at the end of the year where the CAD stands."

The RBI reiterated the sentiment, saying: "Markets have been over-reacting as we have seen in the case of prediction for CAD last year, which were much higher than 5 per cent and we have seen that it is much lower than 5 per cent."

The BSE benchmark index Sensex was trading at 18,712.64 in noon-trade - up 160.52 points or 0.87 per cent.

With inputs from agencies

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