Steep gold import drop to help contain CAD at $70 bn: Mayaram
New Delhi: Encouraged by a steep decline in gold imports, the Finance Ministry on Tuesday expressed confidence that the current account deficit (CAD) in 2013-14 will decline to USD 70 billion or 3.7 percent of the GDP.
Gold imports had totalled 335.1 tonne in the April-June quarter, but have declined to 58.37 in the second quarter (up to September 25).
"This indicates a very sharp compression in the gold imports in Q2 onwards and we expect this trend to continue," Department of Economic Affairs Secretary Arvind Mayaram told reporters here.
The government expects the gold import to come down to 800 tonne this fiscal, as against 845 tonne in 2012-13.
Higher gold imports and slowdown in overall exports were the main reasons that pushed CAD -- the difference between inflow and outflow of foreign exchange -- to a record high of 4.8 percent of GDP or USD 88.2 billion last fiscal.
Mayaram said that in August, exports grew in double digit and the overall merchandise imports slowed.
"Trade deficit narrowed in August to a five month low of USD 10.9 billion. Thus, CAD will be contained at USD 70 billion. Already, many institutional analysts have revised their BoP outlook on CAD and capital flows," he said.
The "elevated level" of CAD at 4.9 percent of the GDP (USD 21.8 billion) in first quarter was mainly due to gold imports which stood at USD 16.5 billion. It would have been lower at USD 14.5 billion excluding the high gold imports.
"With the measures announced by the Finance Minister on August 12, 2013 to compress gold, it is estimated that gold imports could be restricted to about 800 tonne and substantial gains could accrue in the next nine months," Mayaram added.
He sounded confident that India will get additional capital flows to finance CAD fully without any recourse to draw down of reserves this fiscal.