India's Current Account deficit falls to 1.2% of GDP

The current account deficit of India narrowed sharply to 1.2% of GDP in the second quarter. Last year during the same period it was 4.9% of the GDP and 5% five years ago.

Current account fall is a breather for the ailing economy and its prime threat was the scaling current account deficit. Government had identified the cause of this increase in deficit. It was the increase of Gold imports to the country and the spend on oil purchase that contributed to the deficit ballooning.

For curbing the import of Gold Government imposed a 20% import duty on gold along with some other restrictions. The moves have obviously paid off as the import of gold in the second quarter dropped to $3.9 billion as compared to the $16.4 billion last year. When the  merchandise export increased by 12% to $81.2 billion, imports dropped 4% to $114.5 billion.

The Government is hoping to keep the current account deficit for the financial year at $60 billion. The capital inflows to fund the deficit however remained low.

Source : Live Mint