The Reserve Bank of India today said that the Current Account Deficit (CAD) will moderate in the current fiscal on account of softer global commodity prices and recent measures to dampen gold imports.
“Softer global commodity prices and recent measures to dampen gold imports are expected to moderate CAD in 2013-14 from its level last year,” RBI said in its mid-quarter monetary policy review statement.
CAD, which is the difference between the outflow and inflow of foreign currency, is estimated to be around 5 per cent of the GDP in 2012-13 fiscal. CAD had touched a record high of 6.7 per cent during October-December quarter.
RBI said that the trade deficit has widened during April-May due to surge in festival related or seasonal gold imports.
“Available evidence suggests that a moderation in gold imports could be underway in June,” the central bank said.
Trade deficit
According to the official data released today, trade deficit widened to $20.1 billion in May from $17.8 billion a month ago.
Gold and silver imports rose nearly 90 per cent to $8.4 billion in May. Cumulatively, in April-May the imports stood at $15.88 billion.
Gold import duty
The Government has hiked the import duty on gold three times in a year and recently raised it by 2 per cent to 8 per cent to curb demand. Besides, RBI too has put restrictions on banks on importing gold.
RBI said that the main challenge is to reduce CAD to a sustainable level and the near-term challenge is to finance it through stable flows. Huge gold imports have put pressure on the country’s CAD, which in turn is affecting the value of rupee.
Finance Minister P. Chidambaram had last week appealed to people not to buy gold and instead invest in financial instruments. High CAD is also putting pressure on the domestic currency which fell 5.8 per cent since January 1.