India’s Current-Account Deficit Widened to Record Last Quarter

India’s current-account deficit widened to a record last quarter as a faltering global economy crimped the nation’s exports, adding pressure on the rupee to weaken even after the government stepped up a policy overhaul.

The shortfall was $22.31 billion in the three months ended Sept. 30, compared with a revised 16.4 billion gap from April through June, the Reserve Bank of India said in a statement today. The deficit was in line with the $22.3 billion median estimate of 12 economists in a Bloomberg News survey.

India’s efforts to rival China as the fastest-growing major emerging nation have been hurt by budget and trade deficits and supply bottlenecks that have kept inflation above 7 percent, with the government reporting a fiscal gap that reached 80.4 percent of the full-year target in the eight months through November. Prime Minister Manmohan Singh last week cut the goal for economic growth in the five years to 2017 and signaled further fuel-price increases to curb subsidies.

“We will see the current-account deficit significantly above comfort levels in the next quarter as well,” said Shubhada Rao, Mumbai-based chief economist at Yes Bank Ltd. “The rupee will remain under pressure in the next six months and we do not see any meaningful positive triggers until domestic macros improve.”

The rupee slid 0.4 percent to 54.995 per dollar while the BSE India Sensitive Index of stocks fell 0.1 percent today. The benchmark 10-year bond yield fell six basis points, or 0.06 percentage point, to 8.05 percent.

‘Stressed’ Position

Slower Indian expansion and threats from trade and budget deficits have increased the economic risks the nation faces, the Reserve Bank of India said in its biannual Financial Stability Report last week. It flagged a “high” current-account gap and “stressed” fiscal position, saying there was depreciation pressure on the rupee. Demand for gold picked up “significantly” in the July-to-September quarter, according to the report.

Indian exports have fallen for seven straight months as Europe’s debt crisis curbs overseas sales, the longest stretch of declines since the 2009 global recession. The government said this month it will prolong a policy providing subsidized credit to some exporters through the 12 months to March 2014, extending a government push since mid-September to boost the rupee and support economic growth.

Foreign Flows

“The trade deficit has been high and that’s the reason the pressure on the current account will continue in the next quarter as well,” Prasanna Ananthasubramanian, an economist at ICICI Securities Primary Dealership Ltd. in Mumbai, said before the report. Still, “strong” foreign flows have helped the rupee stay “largely stable” as the deficit is being funded, he said.

India’s budget gap in the eight months through November was 4.13 trillion rupees ($75 billion), the Controller General of Accounts said on its website earlier today, compared with 85.6 percent in the same period a year earlier. The budget-deficit target for the year through March 2013 is 5.14 trillion rupees.

Finance Minister Palaniappan Chidambaram has pledged to narrow the budget deficit to 5.3 percent of gross domestic product this fiscal year from 5.8 percent in 2011-2012. Last year’s gap was the widest among the largest emerging markets, fanned by a subsidy program ranging from diesel to fertilizers.

The current account is the broadest measure of trade, tracking goods, services and investment income. The South Asian economy meets about 80 percent of its oil needs through imports.

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