India Current-Account Gap Below Estimates; Rupee Strengthens

India’s current-account deficit widened less than economists estimated in the second quarter and analysts including Goldman Sachs Group Inc. said gold-import curbs will help moderate a shortfall that’s hurt the rupee.

The deficit was $21.8 billion in April through June, compared with $18.1 billion in the previous quarter, the Reserve Bank of India said in a statement in Mumbai yesterday. The median of 26 estimates in a Bloomberg News survey was for a $23 billion gap. The current account is the broadest measure of trade, tracking goods, services and investment income.

The monthly trade deficit has almost halved since May as higher gold-import taxes deter inward shipments of a metal used in India for everything from wedding jewelry to hedging against inflation. The government aims to pare the current-account imbalance from a record $87.8 billion in the fiscal year ended March, part of efforts to support a currency that’s weakened 12 percent versus the dollar in 2013.

“Concerns over deficit financing are alleviating due to improvement in the trade deficit in recent months and steps by the central bank to boost dollar inflows,” said Tirthankar Patnaik, a strategist at Religare Capital Markets Ltd. in Mumbai. The current-account gap will narrow to $55 billion this financial year, easing pressure on the rupee, he said.

Rupee Climbs

The rupee strengthened 0.6 percent to 62.2675 per dollar as of 12:30 p.m. in Mumbai. The S&P BSE Sensex index of stocks rose 0.5 percent. The yield on the 10-year note due May 2023 fell to 8.69 percent from 8.77 percent yesterday. The currency appreciated 4.9 percent last month, helped by RBI Governor Raghuram Rajan’s efforts to attract dollars.

The government has boosted levies on gold bullion bought from abroad thrice in 2013 to 10 percent, most recently in August. Finance Minister Palaniappan Chidambaram said the same month that India intends to compress imports of gold, silver and some non-essential items, as well as demand for crude oil.

“We expect an improvement in the current account due to a falling trade deficit,” Goldman Group analysts Tushar Poddar and Vishal Vaibhaw said in a note. The current-account shortfall will narrow to 3.5 percent of gross domestic product in the year ending March 2014, from 4.8 percent of GDP the previous fiscal year, they said.

India’s budget deficit in the first five months of the fiscal year reached 74.6 percent of the target for 2013-2014, another release showed yesterday.

Budget Deficit

The government doesn’t expect to exceed its borrowing target for October through March, Economic Affairs Secretary Arvind Mayaram told reporters in New Delhi today.

The administration is confident of achieving a fiscal gap of 4.8 percent of GDP in 2013-2014 as targeted and containing the current-account shortfall at $70 billion, he said.

India’s imports fell for three straight months through August. Exports climbed 13 percent that month from a year earlier and the merchandise trade deficit narrowed to $10.9 billion, from $20.1 billion in May.

The current-account gap for 2013-2014 may be less than $60 billion and the depreciation in the rupee is probably helping overseas sales to some extent, according to Barclays Plc.

The current-account deficit was 4.9 percent of GDP in April through June, yesterday’s report showed. The central bank estimates the sustainable level is about 2.5 percent of GDP.

India’s manufacturing shrank for a second month in September, a purchasing managers’ index released by HSBC Holdings Plc and Markit Economics signaled today. The index rose to 49.6 from 48.5 in August. A reading below 50 signals a contraction.

Prime Minister Manmohan Singh’s second term in office has been marred by graft scandals, average consumer-price inflation of about 10 percent in the past year and slumping economic growth. HSBC Holdings Plc predicts expansion will slow further to 4 percent in 2013-2014.

Before it's here, it's on the Bloomberg Terminal.