Twin deficits widen, trade gap may soon ease

By Suvashree Dey Choudhury and Subhadip Sircar

MUMBAI (Reuters) - The current account deficit grew less than expected in the June quarter and is tipped to ease in coming months as a pick-up in exports and lower gold imports improve the trade balance, offering relief to the battered rupee.

But the country's fiscal gap widened sharply in the first five months of the financial year, putting pressure on the government to spend less in the run-up to national elections or risk missing its stated aim of cutting the budget deficit.

The high current account gap has made it especially vulnerable to a surge in capital flows out of emerging markets in recent months, sending its currency down as much as 20 percent this year.

The rupee hit a record low on Aug 28, although it has since recovered some of the lost ground.

The current account deficit (CAD) for the three months through June was $21.8 billion, or 4.9 percent of gross domestic product, driven by sluggish exports and high gold imports in April and May before the government hiked tariffs on the metal to a record 10 percent.

Five economists had predicted the deficit would rise to $23-$25 billion.

The lower-than-expected figure was due in part to stronger inflows from software exports, helped by the weaker rupee.

"Risk of high CAD has receded to a considerable extent but (the risk) is alive on the fiscal deficit," said A. Prasanna, an economist at ICICI Securities Primary Dealership.

BUDGET UNDER PRESSURE

The fiscal deficit rose to 4.05 trillion rupees for the April-August period, or 74.6 percent of the full fiscal year target, higher than the 65.7 percent at the same point a year ago.

The government has set a target of trimming its fiscal deficit to 4.8 percent of GDP in the fiscal year through March but the Congress party-led administration, which faces elections by May, could find it hard to cut back on subsidy spending.

"The government should build on the gains on the external front by taking corrective measures like cutting expenditures to achieve the fiscal deficit target," Prasanna said.

The June-quarter current account deficit was wider than the gap of $18.17 billion, or 3.6 percent of GDP, in the quarter ending in March.

Economists expect the gap to ease as the duty on gold has constricted imports, with improving global demand and the weaker rupee bolstering exports.

A narrowing current account deficit would reduce India's reliance on foreign money to fund the gap.

Since hitting a record low 68.85 to the dollar, the partially convertible rupee has gained about 10 percent and closed on Monday at 62.60.

Balance of payments slipped marginally into deficit for the June quarter at $346 million versus a surplus of $2.68 billion in the March quarter.

Also on Monday, India reported that output for the infrastructure sector rose 3.7 percent year-on-year in August, its biggest gain since January, mainly driven by coal, cement and electricity production.

In the fiscal year through March 2012, infrastructure output grew 3.2 percent compared with 5 percent in the previous year.

(Writing by Tony Munroe; Editing by John Stonestreet)

Matches

MORE TOP STORIES TODAY

Royal test for Kings

Royal test for Kings

Preview — Clash of philosophies between Australia-centric teams More »

Have nothing to prove to anybody — Sehwag

Have nothing to prove to anybody — Sehwag

The Nawab of Najafgarh says a good run in IPL could help his chances of a comeback on India's tour to England in June. More »

Duminy steals first win for Delhi

Duminy steals first win for Delhi

Furious fifties by Duminy and Dinesh Karthik end a long losing streak for the Daredevils. More »

Five things England must do to bounce back

Five things England must do to bounce back

England have appointed a new head coach in Peter Moores. More »

AB, Parthiv seal Bangalore's second win

AB, Parthiv seal Bangalore's second win

Royal Challengers overcame a stutter to cruise to the small target they were set by Mumbai Indians. More »

‘Felt like helpless minority’

‘Felt like helpless minority’

Former BCCI treasurer Ajay Shirke says emotions got the better of the Srinivasan and he tried to oversimplify things by calling Meiyappan an “enthusia… More »

No way back for Pietersen: ECB

No way back for Pietersen: ECB

Kevin Pietersen's hopes of reviving his international career appeared to end Saturday when ECB managing director Paul Downton said there was 'no way back'… More »

The world record that nearly wasn't

The world record that nearly wasn't

Twenty years ago this week, Brian Lara became Test cricket's highest scorer, but he almost didn't make it. More »

Srinivasan can attend BCCI meeting

Srinivasan can attend BCCI meeting

His status as president of TNCA makes him eligible to attend the Working Committee meeting on Sunday. More »

Moores gets second stint as coach

Moores gets second stint as coach

In a two-year spell from 2007 to 2009, the 51-year-old Moores led England in seven Test series. More »

Bangladesh senior players to see shrink

Bangladesh senior players to see shrink

Bangladesh's senior players will have three sessions with a psychological skill development coach later this month More »

Maxwell carves his parallel universe

Maxwell carves his parallel universe

Glenn Maxwell seems to project an icy disdain when at the crease. Match situations rarely faze him and the bubble in which he plays excludes everyone … More »

BCCI is not anybody’s property — Dalmiya

BCCI is not anybody’s property — Dalmiya

Dalmiya feels that Srinivasan’s ‘power hungry’ attitude isn’t helping matters. More »

Tough for bowlers: Saeed Ajmal

Tough for bowlers: Saeed Ajmal

The 36-year-old believes the T20 format and rule changes in 50-over matches have made a real difference. More »

KP ridicules idea of day-night Tests

KP ridicules idea of day-night Tests

Kevin Pietersen has ridiculed the idea of day-night Test cricket, saying the game would be so different to proper Test cricket that we will need a whole… More »

Rajasthan edge low-scoring thriller

Rajasthan edge low-scoring thriller

The bowlers restricted Hyderabad to 133 for 6 before Rahane and Binny took Rajasthan over the line. More »

Maxwell blitz takes Punjab home

Maxwell blitz takes Punjab home

The Kings XI batsman blasted a 43-ball 95 to help his team pull off a massive chase against Chennai Super Kings. More »

BCCI members want independent probe

BCCI members want independent probe

The board members are realising after the Supreme Court's observations that something has to be done — IS Bindra More »

'BCCI lacks leaders to take on Srini'

'BCCI lacks leaders to take on Srini'

Two former BCCI presidents, Shashank Manohar and Jagmohan Dalmiya, have reacted strongly to the news of the BCCI calling an emergent meeting on Sunday… More »

Delhi look for first points against confident Kolkata

Delhi look for first points against confident Kolkata

Preview — The threat of Sunil Narine looms large again. More »

Bangalore vs Mumbai: A battle of the big-hitters

Bangalore vs Mumbai: A battle of the big-hitters

Preview — Given the firepower in both line-ups, Dubai crowd may see another high-scorer More »

Yuvraj tees off to Sharjah's delight

Yuvraj tees off to Sharjah's delight

Yuvraj Singh was hardly convincing to begin with against Delhi, but a big dose of crowd support and a helping of poor bowling meant he had the opportunity… More »

Stressed Trott stands down again

Stressed Trott stands down again

The England and Wales Cricket Board (ECB) on Friday confirmed that batsman Jonathan Trott is to take another break from all cricket with immediate eff… More »

PCB starts another coach hunt

PCB starts another coach hunt

The PCB has decided to not extend the contracts of head coach Moin Khan, fielding coach Shoaib Mohammad and batting consultant Zaheer Abbas, and has invited… More »