India Current-Account Gap Drops in Boost for Modi Government

India’s current-account deficit narrowed to a fresh four-year low as higher tariffs reduced gold imports, giving Prime Minister Narendra Modi’s government more room to bolster Asia’s third-largest economy.

The shortfall was $1.2 billion in January through March, compared with $4.2 billion for the prior quarter, the Reserve Bank of India said in a statement in Mumbai yesterday. The deficit was equivalent to 0.2 percent of gross domestic product for the quarter, while the gap for the fiscal year shrank to 1.7 percent from 4.7 percent in the previous 12 months. The current account is the broadest measure of trade.

A shrinking shortfall will bolster India’s rupee as optimism grows that Modi, who was sworn in yesterday, will spur growth from near a decade low. A stronger currency will make imports cheaper, aiding Modi’s efforts to boost manufacturing and exports to fulfill his campaign promises of a stronger economy, more jobs and better roads.

“The current-account gap looks manageable given the expected recovery in exports,” said Sujan Hajra, a Mumbai-based economist at Anand Rathi Financial Services Ltd. “The new government will be able to gradually phase out the gold import curbs if India sees further rise in inflows on the back of the growth push generated by the new government.”

Imports, Exports

The rupee fell 0.4 percent to 58.7150 per dollar in Mumbai yesterday, paring its advance this year to 5.2 percent, one of the world’s best. The S&P BSE Sensex index rose 0.1 percent to a record high. The January-March deficit is the least in data going back to 2010, which are calculated using the latest applicable International Monetary Fund guidelines.

Three-month offshore non-deliverable forwards rose 0.2 percent to 59.48 as of 11:10 a.m. in Singapore after declining 0.7 percent yesterday, according to data compiled by Bloomberg. Forwards are agreements to buy or sell assets at a set price and date.

The current-account deficit narrowed as the trade gap declined due to a faster drop in imports than exports, the central bank said in a statement yesterday. Exports declined by 1.3 percent to $83.7 billion in the January-March quarter, compared with an increase of 5.9 percent last year.

Imports fell by 12.3 percent, led by gold shipments that dropped to $5.3 billion compared with $15.8 billion in the same quarter a year earlier, the RBI said.

Foreign reserves rose a net $7.1 billion in the three months ending March 31, versus $19.1 billion the previous quarter, the RBI said.

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