India has pledged to do whatever necessary to tackle its current-account deficit, after heavy oil and gold imports combined with muted exports to drive the gap to a record high.
In a worse-than-expected reading that will keep the rupee currency under pressure, the deficit hit $32.6bn (£21.5bn) in the final three months of 2012, compared with $22.3bn in the September quarter. For April-December, the current-account deficit was $71.7bn, 5.4% of GDP.
While robust inbound investments into equities and debt have enabled India to fund the gap, these flows can be fickle and a sharp reversal, possibly triggered by an external shock, would leave the country's balance of payments at risk.
The finance ministry said the deficit would probably moderate in the March quarter if the trend of improved exports and steady imports persisted. The government and central bank would then take additional steps whenever warranted to tackle the gap, it added.
Economists, who had forecast a figure of just over 6% of GDP, also expect the gap to narrow in the current quarter. That should give some relief to policymakers also struggling to inject momentum into an economy that appears to be growing at its slowest rate in a decade, while also trying to stifle inflationary pressures. Growth of 5% is expected for the fiscal year ending this month.
