India's current account gap widens
India's current account deficit in the September quarter widened to a record high of $15.8 billion as booming domestic consumer demand sucked in imports and service sector exports suffered from weak global demand.
However, robust capital inflows helped the overall balance of payments remain positive, Reserve Bank of India (RBI) data showed on Friday.
The current account deficit for the September quarter widened compared with a downwardly revised $12.1 billion in the June quarter.
A recent report by Goldman Sachs said India's current account deficit may widen to a record 4 percent in the current fiscal year ending March from 2.9 percent in the previous year, flagging the deficit as a risk for India.
The report also said the current account gap could grow to 4.3 percent in the fiscal year that ends in March 2012.
However, India's policy makers are more optimistic, with Deputy Chairman of the Planning Commission Montek Singh Ahluwalia saying earlier that India can live with a current account gap of 3 to 3.5 percent of its gross domestic product.
Senior trade ministry officials have said they expect the current account gap in the current fiscal at close to 3 percent of the GDP.
Policymakers are concerned about the manner in which the current account gap is being financed.
The Goldman report suggests that increasingly India's current account deficit is being financed by short-term capital flows, which raises India's vulnerability in the external sector in the event of a reversal of capital flows.
It, however, said India's foreign exchange reserves were adequate to offset temporary reversals in capital.
Foreign direct investment (FDI) has fallen by over 24 percent in the first seven months this year to $12.56 billion and analysts say FDI flows are likely to remain subdued for the rest of the fiscal year as concerns abound on the slow pace of reforms and political volatility in India.
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